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Question
State the differences between the fixed capital method and fluctuating capital method.
Solution
| S. No. | Basis of distinction | Fixed capital method | Fluctuating capital method |
| 1. | Number of accounts | Two accounts are maintained for each partner, that is, capital account and current account. | Only one account, that is, a capital account is maintained for each partner. |
| 2. | Change in Capital | The amount of capital normally remains unchanged except when additional capital is introduced or capital is withdrawn permanently. | The amount of capital changes from period to period. |
| 3. | Closing balance | Capital account always shows a credit balance. But, current account may show either debit or credit balance. | Capital account generally shows a credit balance. It may also show a debit balance. |
| 4. | Adjustment | All adjustments relating to interest on capital, interest on drawings, salary or commission, share of profit or loss are done in the current account. | All adjustments relating to interest on drawings, salary or commission, share of profit or loss are done in the capital account. |
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From the following information, prepare capital accounts of partners Rooban and Deri, when their capitals are fixed.
| Particulars | Rooban ₹ |
Deri ₹ |
| Capital on 1st April, 2018 | 70,000 | 50,000 |
| Current account on 1st April, 2018 (Cr.) | 25,000 | 15,000 |
| Additional capital introduced | 18,000 | 16,000 |
| Drawings during 2018 – 2019 | 10,000 | 6,000 |
| Interest on drawings | 500 | 300 |
| Share of profit for 2018 – 2019 | 35,000 | 25,800 |
| Interest on capital | 3,500 | 2,500 |
| Salary | Nil | 18,000 |
| Commission | 12,000 | Nil |
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