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Difficulty: EasyFixed and Fluctuating Capital Accounts

Under a fluctuating capital account system, Bisi's capital account had an opening credit balance of ₦500,000\text{₦}500,000 on 1st January 2025. During the year, she introduced additional capital of ₦100,000\text{₦}100,000, was credited with a share of profit of ₦80,000\text{₦}80,000, and made cash drawings of ₦50,000\text{₦}50,000. What is the closing balance of Bisi's capital account in Naira (₦\text{₦}) at 31st December 2025?

Answer: 630000 ₦

Answer

The closing balance of Bisi's capital account is ₦630,000.
Under a fluctuating capital account system, only one account (the Capital Account) is maintained for each partner. All transactions—including opening balance, additional capital, profit share, and drawings—are combined into this single account. The closing credit balance is calculated as ₦500,000+₦100,000+₦80,000−₦50,000=₦630,000\text{₦}500,000 + \text{₦}100,000 + \text{₦}80,000 - \text{₦}50,000 = \text{₦}630,000.

Step-by-Step Solution

1
Calculate total credits to the fluctuating capital account
₦500,000 + ₦100,000 + ₦80,000 = ₦680,000
Under the fluctuating capital account system, all capital contributions and profit appropriations are credited directly to the capital account.
2
Deduct total debits (drawings) from the capital account
₦680,000 - ₦50,000 = ₦630,000
Drawings reduce partner's equity and are debited directly to the capital account under the fluctuating method.

Key Concept

Fluctuating Capital Account Method
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Topics

Fixed and Fluctuating Capital Accounts

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