What is fixed capital method?
What is fluctuating capital method?
definition for these questions pls guys correct answer
Answers
Answer:
The capital account of partners can be kept in any of the following two ways:
Fixed capital method
Fluctuating Capital method
Fixed Capital Method
Under the fixed nature of capital, the capital of each partner remains constant from the start of partnership till at the end of it. No adjustments like interest on capital, partner’s salary/commission, Drawings and profit or loss earned during the operation is made.
To have record of all such adjustments each partner’s current account is opened, which is debited with Drawings, share of loss sustained during a period and credit is given for partner’s salary/commission, interest on capital and share of profit earned.
After all the adjustments have been made in the current A/c., it is balanced, if it shows debit balance it will be shown in the balance sheet on asset side and if it shows credit balance it will be shown on the liability side.
At the time of dissolution of the partnership, each partner’s current account balance is transferred to capital A/c. The credit balance of current account will be credited to capital account and debit balance of the current account will be debited to respective partners capital account.
Fluctuating Capital Method
Under this method as is apparent from the name, capital of each partner goes on changing from time to time. Each partner will have his separate capital account, which will be credited by his initial investment and any additional capital introduced during the year will also be credited to his capital account.
All the adjustments, which result decrease in capital will be debited to partner’s capital, such as drawing made by each partner, interest on drawings and share of loss. On the other hand, adjustments resulting increase in capital will be credited to partner’s capital, like interest on capital, partners salary if any, partner’s share of profit etc.
Balance of each partner’s capital account will be shown in the balance sheet. Debit balance of partner’s capital account is shown on the asset side and credit balance is shown on the liability side.
Answer :-
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Fixed Capital
Fixed capital consists of assets that are not consumed or destroyed in the production of a good or service and can be used multiple times. Property, plant, and equipment are standard fixed capital items. Fixed capital assets are usually illiquid items and are depreciated over time.
Flucturating Capital
Fluctuating capital is a type of capital account which changes/fluctuates every time there is addition in capital or when capital is withdrawn. Interest on capital, profit, salary, commission all appears on the credit side and interest on drawings, drawings appears on the debit side.
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