Chidi and Musa operate a partnership business under a fixed capital account system. For the year ended 31st December 2025, the following ledger details relate to Musa:
| Transaction Details | Amount (₦) |
|---|---|
| Opening Current Account balance (1st January 2025) | 120,000 (Credit) |
| Share of profit for the year | 350,000 |
| Interest on capital | 40,000 |
| Partner's annual salary | 80,000 |
| Cash drawings made during the year | 150,000 |
| Interest on drawings | 10,000 |
What is the closing balance of Musa's Current Account as at 31st December 2025?
- ₦430,000 credit balanceAnswer
- B₦750,000 credit balance
- C₦450,000 credit balance
- D₦350,000 credit balance
Answer
Musa's Current Account has a closing credit balance of ₦430,000.
Under the fixed capital account method, the initial capital remains unchanged unless additional capital is introduced or permanent capital is withdrawn. All operational appropriations—including share of profit, interest on capital, and salary—are credited to the partner's Current Account, while drawings and interest on drawings are debited. Adding total credits (₦590,000) and subtracting total debits (₦160,000) results in a closing credit balance of ₦430,000.
Step-by-Step Solution
Key Concept
Partnership Current Account Preparation under Fixed Capital System