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Difficulty: MediumFixed and Fluctuating Capital Accounts

Efe and Danjuma are partners in a business operating a fixed capital account system. On 1st January 2025, Efe's current account had a credit balance of ₦150,000\text{₦}150,000. During the year ended 31st December 2025, Efe was entitled to a partner salary of ₦200,000\text{₦}200,000, interest on capital of ₦60,000\text{₦}60,000, and a share of profit of ₦340,000\text{₦}340,000. Efe's drawings for the year amounted to ₦180,000\text{₦}180,000, and interest charged on drawings was ₦10,000\text{₦}10,000. What is the closing balance of Efe's current account as at 31st December 2025 in Naira?

Answer: 560000 ₦

Answer

The closing balance of Efe's current account as at 31st December 2025 is ₦560,000.
Under the fixed capital account system, partner capital remains fixed while operational adjustments are made through the current account. Adding opening balance (₦150,000), salary (₦200,000), interest on capital (₦60,000), and profit share (₦340,000) gives total credits of ₦750,000. Deducting drawings (₦180,000) and interest on drawings (₦10,000) gives a net closing credit balance of ₦560,000.

Step-by-Step Solution

1
Calculate the total credit entries to Efe's current account by adding the opening credit balance, salary, interest on capital, and share of profit.
Total Credits = ₦150,000 + ₦200,000 + ₦60,000 + ₦340,000 = ₦750,000
Under the fixed capital account method, all partner entitlements and profit allocations are credited to their current account.
2
Calculate the total debit entries to Efe's current account by adding drawings and interest on drawings.
Total Debits = ₦180,000 + ₦10,000 = ₦190,000
Drawings and interest charged on drawings reduce the partner's claim against the partnership and are debited to the current account.
3
Deduct total debits from total credits to determine the net closing current account balance.
Closing Balance = ₦750,000 - ₦190,000 = ₦560,000
Subtracting debit items from total credit allocations leaves a net credit balance of ₦560,000.

Key Concept

Computation of partner current account balance under the fixed capital account system.
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Topics

Fixed and Fluctuating Capital Accounts

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