Question

In the books of a partnership firm maintaining fluctuating capital accounts, which of the following appropriations or adjustments would result in a credit to the Partners' Current Accounts?

• A. Interest allowed on partners' capitals
• B. Remuneration, salary or commission payable to partners
• C. Share of divisible profits transferred to partners
• D. All of the above items

Hint:

To remember which side to record an item on: If it makes the partner "richer" (Interest, Salary, Profit), it goes on the Credit side. If it makes them "poorer" (Drawings, Interest on Drawings, Loss), it goes on the Debit side.

Answer 1

The Correct Option is D

Concept: In partnership accounting, there are two methods of maintaining capital accounts: Fixed and Fluctuating. Under the Fixed Capital Method, two accounts are maintained for each partner: a Capital Account (for the initial investment) and a Current Account (for all appropriations and adjustments).

Step 1: Understanding Credit entries in Partners' Current Accounts.
Appropriations that increase the partner's claim against the firm are credited to their account.
• Interest on Capital: This is an income for the partner and is credited to their account.
• Salary/Commission: Any remuneration payable to a partner for their services is a credit entry.
• Share of Profit: The divisible profit from the P&L Appropriation account is credited to the partners in their profit-sharing ratio.

Step 2: Correcting the premise of the question.
The question mentions a firm maintaining fluctuating capital accounts but asks about credits to Partners' Current Accounts. * Under the Fluctuating method, only one account (Capital Account) is maintained, and all adjustments (a, b, and c) are credited directly to that Capital Account. * The term "Current Account" is only used under the Fixed Capital Method. * Regardless of the account name used in the question's premise, items (a), (b), and (c) are the standard appropriations that result in a credit to a partner's personal account (whether it be Capital or Current). Therefore, all the listed items would result in a credit entry.