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Difficulty: MediumFixed and Fluctuating Capital Accounts

Taribo and Ubong are partners operating under a fixed capital account system. On 1st January 2025, Ubong's current account had a credit balance of ₦150,000\text{₦}150,000. For the year ended 31st December 2025, the accounting records revealed the following:

- Share of profit: ₦420,000\text{₦}420,000
- Interest on capital: ₦60,000\text{₦}60,000
- Annual partner salary: ₦180,000\text{₦}180,000
- Cash drawings: ₦250,000\text{₦}250,000
- Interest on drawings: ₦10,000\text{₦}10,000

What is the balance of Ubong's current account as at 31st December 2025?

  1. ₦550,000\text{₦}550,000 creditAnswer
  2. B
    ₦400,000\text{₦}400,000 credit
  3. C
    ₦1,070,000\text{₦}1,070,000 credit
  4. D
    ₦250,000\text{₦}250,000 debit

Answer

₦550,000\text{₦}550,000 credit
Under a fixed capital system, the capital account balance remains unchanged unless additional capital is introduced or permanent capital is withdrawn. All routine transactions (share of profit, partner salary, interest on capital, drawings, and interest on drawings) pass through the partner's current account. Adding total credit entries (₦150,000+₦420,000+₦60,000+₦180,000=₦810,000\text{₦}150,000 + \text{₦}420,000 + \text{₦}60,000 + \text{₦}180,000 = \text{₦}810,000) and deducting total debit entries (₦250,000+₦10,000=₦260,000\text{₦}250,000 + \text{₦}10,000 = \text{₦}260,000) gives a closing credit balance of ₦550,000\text{₦}550,000.

Step-by-Step Solution

1
Sum all credit items for the partner's current account.
Total Credits = Opening Credit Balance (₦150,000\text{₦}150,000) + Share of Profit (₦420,000\text{₦}420,000) + Interest on Capital (₦60,000\text{₦}60,000) + Partner Salary (₦180,000\text{₦}180,000) = ₦810,000\text{₦}810,000.
In a fixed capital system, partner entitlements and opening credit balances are recorded on the credit side of the current account.
2
Sum all debit items for the partner's current account.
Total Debits = Cash Drawings (₦250,000\text{₦}250,000) + Interest on Drawings (₦10,000\text{₦}10,000) = ₦260,000\text{₦}260,000.
Drawings and charges imposed on the partner reduce their claim against the firm and are posted to the debit side.
3
Calculate the closing balance by subtracting total debits from total credits.
Closing Balance = ₦810,000−₦260,000=₦550,000\text{₦}810,000 - \text{₦}260,000 = \text{₦}550,000 credit.
Since total credits exceed total debits, the net balance remains a credit balance.

Key Concept

Fixed Capital Account System - Current Account Calculations
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Topics

Fixed and Fluctuating Capital Accounts

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