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Difficulty: MediumFixed and Fluctuating Capital Accounts

Halima and Emeka are partners in a firm that operates a fixed capital account system. On 1st January 2025, Emeka's Current Account had a debit balance of ₦45,000\text{₦}45,000. For the year ended 31st December 2025, Emeka was entitled to a partner's salary of ₦180,000\text{₦}180,000, interest on capital of ₦35,000\text{₦}35,000, and a share of profit of ₦110,000\text{₦}110,000. During the year, Emeka's total drawings amounted to ₦95,000\text{₦}95,000 and interest on drawings charged was ₦5,000\text{₦}5,000. What is the closing balance of Emeka's Current Account as at 31st December 2025?

  1. A
    ₦270,000 credit\text{₦}270,000\text{ credit}
  2. ₦180,000 credit\text{₦}180,000\text{ credit}Answer
  3. C
    ₦370,000 credit\text{₦}370,000\text{ credit}
  4. D
    ₦190,000 credit\text{₦}190,000\text{ credit}

Answer

The closing balance of Emeka's Current Account as at 31st December 2025 is ₦180,000 credit.
The correct answer of ₦180,000 credit is derived by crediting all entitlements (Salary ₦180,000 + Interest on Capital ₦35,000 + Profit Share ₦110,000 = ₦325,000) and deducting all debit items (Opening Debit ₦45,000 + Drawings ₦95,000 + Interest on Drawings ₦5,000 = ₦145,000). ₦325,000 minus ₦145,000 yields ₦180,000 credit.

Step-by-Step Solution

1
Calculate total credit appropriations and earnings for Emeka
Partner Salary (₦180,000) + Interest on Capital (₦35,000) + Share of Profit (₦110,000) = ₦325,000
Under a fixed capital system, partner entitlements are credited to the partner's Current Account.
2
Calculate total debit items for Emeka
Opening Debit Balance (₦45,000) + Drawings (₦95,000) + Interest on Drawings (₦5,000) = ₦145,000
Opening debit balances, withdrawals, and interest charges reduce the partner's equity in the current account and must be debited.
3
Determine the net closing balance of the Current Account
Total Credits (₦325,000) - Total Debits (₦145,000) = ₦180,000 Credit
Since total credit additions exceed total debit reductions, the account retains a net credit balance.

Key Concept

Calculation of Partner Current Account Closing Balance under Fixed Capital System
Estimated Time:1m 30s
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Topics

Fixed and Fluctuating Capital Accounts

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