Fixed and Fluctuating Capital Accounts

14 questions

When a partnership firm operates the fixed capital account system, in which account is a partner's share of net profit credited at the end of the accounting period?

Partner's Current Account

Partner's Capital Account

Profit and Loss Account

Drawings Account

Show answer & explanation

Answer: Partner's Current Account

Answer

Partner's Current Account

Under the fixed capital account system, the partner's capital account maintains a constant balance containing only initial capital, permanent additions, or permanent capital withdrawals. All recurring operational allocations such as profit shares, partner salaries, interest on capital, and drawings are credited or debited to the partner's current account.

Step-by-Step Solution

Identify the accounting method specified in the prompt

The firm uses the fixed capital account method.

Partnership accounting distinguishes between fixed and fluctuating capital methods.

Apply the rule of the fixed capital account method

The Capital Account balance is kept fixed, while all annual appropriations (profit share, salaries, drawings, interest) are posted to the Current Account.

This maintains the initial capital structure distinct from accumulated profits and appropriations.

Determine the crediting account for share of profit

The share of profit increases the partner's equity, so it is credited to the Partner's Current Account.

Crediting the current account reflects the allocation of profits available to the partner without altering original capital.

Key Concept

Fixed Capital Accounts Method

Estimated Time:45s

Question 2Question →

Kemi and Tunde are partners sharing profits and losses in the ratio $3:2$ . The partnership agreement specifies that capital accounts are fixed. On 1st January 2024, their capital account balances were $\text{₦}500,000$ and $\text{₦}300,000$ respectively, while Tunde's current account had a debit balance of $\text{₦}15,000$ .

For the financial year ended 31st December 2024, the following figures were extracted:
- Net profit before deducting loan interest: $\text{₦}250,000$
- Tunde provided a loan of $\text{₦}100,000$ to the firm on 1st January 2024 at $10\%$ interest per annum
- Interest on capital: $10\%$ per annum
- Partners' annual salaries: Kemi $\text{₦}40,000$ ; Tunde $\text{₦}20,000$
- Drawings during the year: Kemi $\text{₦}30,000$ ; Tunde $\text{₦}25,000$
- Interest on drawings: Kemi $\text{₦}3,000$ ; Tunde $\text{₦}2,000$

What is the closing balance of Tunde's Current Account as at 31st December 2024?

₦60,000 Credit

₦54,000 Credit

₦90,000 Credit

₦110,000 Credit

Show answer & explanation

Answer: ₦60,000 Credit

Answer

₦60,000 Credit

Under the fixed capital account method, capital balances remain constant while all appropriations, drawings, and interest are posted to the current accounts. Interest on partner loan of ₦10,000 is charged to the Profit and Loss Account, reducing profit to ₦240,000. Adding total interest on drawings (₦5,000) and deducting total interest on capital (₦80,000) and salaries (₦60,000) leaves ₦105,000 residual profit. Tunde's share is ₦42,000. Crediting Tunde's account with interest on capital (₦30,000), salary (₦20,000), profit share (₦42,000), and loan interest (₦10,000) gives ₦102,000 total credits. Subtracting total debits of ₦42,000 (opening debit ₦15,000 + drawings ₦25,000 + IOD ₦2,000) results in a closing balance of ₦60,000 Credit.

Step-by-Step Solution

Calculate interest on partner loan and net profit available for appropriation

Interest on Tunde's loan = 10% of ₦100,000 = ₦10,000. Net profit for appropriation = ₦250,000 - ₦10,000 = ��240,000.

Interest on partner loan is a charge against profit (Profit and Loss Account item), not an appropriation of profit.

Determine residual profit in the Profit and Loss Appropriation Account

Net profit (₦240,000) + Total interest on drawings (₦5,000) - Total interest on capital (₦80,000) - Total salaries (₦60,000) = ₦105,000 residual profit.

Interest on drawings increases profits available for sharing, while interest on capital and partner salaries reduce residual profit.

Calculate Tunde's share of residual profit

Tunde's share = (2 / 5) × ₦105,000 = ₦42,000.

Profits are shared in the agreed ratio of 3:2.

Compute closing balance of Tunde's Current Account

Total Credits = ₦30,000 (IOC) + ₦20,000 (Salary) + ₦42,000 (Profit) + ��10,000 (Loan Interest) = ₦102,000. Total Debits = ₦15,000 (Opening Debit) + ₦25,000 (Drawings) + ₦2,000 (IOD) = ₦42,000. Closing Balance = ₦102,000 - ₦42,000 = ₦60,000 Credit.

Current account credits include partner entitlements and earned loan interest, while debits include opening debit balance, drawings, and interest on drawings.

Key Concept

Fixed Capital Account System and Partner Current Account Preparation

Question 3Question →

Musa and Chidi are partners in a firm sharing profits and losses in the ratio $3:2$ . On 1st January 2025, their capital balances were $\text{\mathbb{N}}500,000$ and $\text{\mathbb{N}}300,000$ respectively.

During the year ended 31st December 2025, the following transactions occurred:
- On 1st July 2025, Musa introduced an additional capital of $\text{\mathbb{N}}100,000$ , while Chidi withdrew $\text{\mathbb{N}}50,000$ of his capital.
- Partnership deed allows interest on capital at $10\%$ per annum on time-proportioned capital.
- Chidi is entitled to an annual partner salary of $\text{\mathbb{N}}40,000$ .
- Interest on drawings is charged at $5\%$ per annum. Musa drew $\text{\mathbb{N}}60,000$ on 1st April 2025, and Chidi drew $\text{\mathbb{N}}40,000$ on 1st October 2025.
- On 1st March 2025, Musa advanced a loan of $\text{\mathbb{N}}100,000$ to the firm. Interest on partner loan is payable at $6\%$ per annum.
- The net profit of the firm before accounting for interest on Musa's loan for the year was $\text{\mathbb{N}}250,000$ .

If the partnership maintains fluctuating capital accounts, what is the closing balance of Musa's capital account as at 31st December 2025 (in $\text{\mathbb{N}}$ )?

Show answer & explanation

Answer: 667900

Answer

The closing balance of Musa's fluctuating capital account as at 31st December 2025 is NGN 667,900.

Under the fluctuating capital method, all transactions affecting a partner—including opening capital, additional capital introduced, interest on capital, share of profits, drawings, and interest on drawings—are combined into a single capital account. The closing balance of NGN 667,900 is obtained by adding all credit items (opening balance NGN 500,000 + additional capital NGN 100,000 + interest on capital NGN 55,000 + share of profit NGN 75,150 = NGN 730,150) and subtracting all debit items (drawings NGN 60,000 + interest on drawings NGN 2,250 = NGN 62,250). Note that interest on Musa's loan (NGN 5,000) is a charge against firm income in the Profit and Loss Account and credited to a separate Loan Account, so it reduces the net profit available for appropriation to NGN 245,000 but does not directly enter the capital account.

Step-by-Step Solution

Calculate interest on partner loan and net profit after loan interest

Loan interest = 6% * NGN 100,000 * (10/12) = NGN 5,000. Adjusted Net Profit = NGN 250,000 - NGN 5,000 = NGN 245,000.

Interest on a partner loan is a charge against profit (P&L expense), not an appropriation of profit.

Compute time-apportioned interest on capital for each partner

Musa: (10% * NGN 500,000) + (10% * NGN 100,000 * 6/12) = NGN 55,000. Chidi: (10% * NGN 300,000) - (10% * NGN 50,000 * 6/12) = NGN 27,500. Total = NGN 82,500.

Capital introduced or withdrawn mid-year must be time-apportioned to determine accurate interest on capital.

Compute interest on drawings for each partner

Musa: 5% * NGN 60,000 * (9/12) = NGN 2,250. Chidi: 5% * NGN 40,000 * (3/12) = NGN 500. Total = NGN 2,750.

Interest on drawings is calculated from the date of withdrawal to the end of the accounting period.

Determine divisible residual profit and Musa's share

Divisible Profit = NGN 245,000 + NGN 2,750 - NGN 82,500 - NGN 40,000 = NGN 125,250. Musa's share (3/5) = NGN 75,150.

Appropriations (salary and interest on capital) are deducted from available profit, and interest on drawings is added.

Calculate Musa's closing balance under the fluctuating capital method

Musa's Closing Capital = NGN 500,000 (opening) + NGN 100,000 (addition) + NGN 55,000 (interest on capital) + NGN 75,150 (profit share) - NGN 60,000 (drawings) - NGN 2,250 (interest on drawings) = NGN 667,900.

Under the fluctuating capital method, all adjustments (additions, drawings, interest, salary, and profit shares) pass directly through a single capital account.

Key Concept

Fluctuating Capital Account Preparation and Profit & Loss Appropriation Adjustments

Question 4Question →

Ngozi and Emeka are partners in a firm maintaining fluctuating capital accounts. On 1st January 2025, Ngozi's capital account balance was ₦450,000. During the year ended 31st December 2025, Ngozi introduced additional capital of ₦100,000. The partnership appropriation records show that Ngozi was credited with interest on capital of ₦45,000, a annual partner salary of ₦80,000, and a share of profit amounting to ₦120,000. During the same period, Ngozi made cash drawings of ₦60,000 and was charged ₦5,000 as interest on drawings. What is the balance of Ngozi's capital account as at 31st December 2025 in Naira (₦)?

Show answer & explanation

Answer: 730000

Answer

The balance of Ngozi's capital account as at 31st December 2025 is ₦730,000.

Under the fluctuating capital method, all capital adjustments, partner entitlements, and withdrawals are recorded directly in the Capital Account. The closing balance is calculated by summing all credit entries (Opening Capital ₦450,000 + Additional Capital ₦100,000 + Interest on Capital ₦45,000 + Salary ₦80,000 + Share of Profit ₦120,000 = ₦795,000) and subtracting all debit entries (Drawings ₦60,000 + Interest on Drawings ₦5,000 = ₦65,000), giving a closing capital balance of ₦730,000.

Step-by-Step Solution

Calculate total credit additions to Ngozi's capital account.

₦450,000 + ₦100,000 + ₦45,000 + ₦80,000 + ₦120,000 = ₦795,000.

Under the fluctuating capital account system, opening capital, additional capital introduced, interest on capital, partner salaries, and shares of profit are credited to the partner's capital account.

Calculate total debit deductions from Ngozi's capital account.

₦60,000 + ₦5,000 = ₦65,000.

Drawings and interest on drawings reduce the partner's total capital balance and are debited to the capital account.

Compute the closing capital balance as at 31st December 2025.

₦795,000 - ₦65,000 = ₦730,000.

Deducting total debits from total credits provides the net closing credit balance of the capital account.

Key Concept

Calculation of closing capital balance under the fluctuating capital account method.

Estimated Time:1m 30s

Question 5Question →

Zainab and Tariq are partners sharing profits and losses in the ratio $3:2$ . On 1st January 2025, their fixed capital balances were $\text{₦}800,000$ and $\text{₦}500,000$ , while their current account balances were $\text{₦}45,000$ (Credit) and $\text{₦}12,000$ (Debit) respectively. Zainab had also granted a loan of $\text{₦}100,000$ to the firm on 1st January 2025 at $10\%$ interest per annum. For the year ended 31st December 2025, the net profit before charging loan interest was $\text{��}340,000$ .

Additional partnership details for the year:
- Interest on capital is allowed at $5\%$ per annum on fixed capital.
- Tariq is entitled to an annual partner salary of $\text{₦}35,000$ .
- Interest on drawings charged: Zainab $\text{₦}5,000$ , Tariq $\text{₦}3,000$ .
- Drawings made during the year: Zainab $\text{₦}50,000$ , Tariq $\text{₦}30,000$ .

If the partners decide to switch from a fixed capital system to a fluctuating capital system at year-end by amalgamating their current account balances into their capital accounts, what is the closing balance of Tariq's Capital Account as at 31st December 2025?

₦610,200

₦614,200

₦634,200

₦670,200

Show answer & explanation

Answer: ₦610,200

Answer

The closing balance of Tariq's Capital Account as at 31st December 2025 under the fluctuating capital system is ₦610,200.

The correct answer is derived by first deducting the ₦10,000 interest on Zainab's loan from net profit to arrive at an adjusted net profit of ₦330,000. Adding total interest on drawings (₦8,000) and deducting interest on capital (₦65,000) and partner salary (₦35,000) yields a residual profit of ₦238,000, of which Tariq's 2/5 share is ₦95,200. Combining Tariq's credits (₦25,000 interest on capital + ₦35,000 salary + ₦95,200 profit share) and deducting his debits (₦12,000 opening debit balance + ₦30,000 drawings + ₦3,000 interest on drawings) gives a net current account balance of ₦110,200 (Credit). Merging this with his fixed capital of ₦500,000 yields a total fluctuating closing capital of ₦610,200.

Step-by-Step Solution

Calculate the correct Net Profit after charging interest on partner loan

Net Profit = ₦340,000 - (10% of ₦100,000) = ₦330,000

Interest on partner's loan is a charge against profit (debited to P&L account), not an appropriation of profit.

Compute total appropriations and residual profit available for sharing

Divisible Profit = ₦330,000 + ₦8,000 (Interest on Drawings) - ₦65,000 (Interest on Capital) - ₦35,000 (Tariq's Salary) = ₦238,000

Interest on drawings increases profits available for distribution, while interest on capital and salary reduce it.

Calculate Tariq's share of residual profit

Tariq's Share = (2 / 5) * ₦238,000 = ₦95,200

Profits are shared in the agreed ratio of 3:2.

Determine Tariq's ending Current Account balance

Credit items = ₦25,000 (Interest on Capital) + ₦35,000 (Salary) + ₦95,200 (Share of Profit) = ₦155,200. Debit items = ₦12,000 (Opening Dr Balance) + ₦30,000 (Drawings) + ₦3,000 (Interest on Drawings) = ₦45,000. Net Current Account Balance = ₦155,200 - ₦45,000 = ₦110,200 (Credit)

Debits (drawings, interest on drawings, opening debit balance) are subtracted from credits (salary, interest on capital, profit share).

Calculate Tariq's closing fluctuating capital account balance

Closing Capital Balance = Opening Fixed Capital (₦500,000) + Ending Current Account Balance (₦110,200) = ₦610,200

Under a fluctuating capital system, capital and current account entries are combined into a single capital account.

Key Concept

Fixed vs Fluctuating Capital Accounts in Partnership Accounting

Estimated Time:3m 0s

Question 6Question →

Ade and Femi are partners in a business sharing profits and losses in the ratio $3:2$ . The partnership agreement specifies that the firm maintains fixed capital accounts. On 1st January 2025, Ade's capital account balance was $\text{₦}1,200,000$ and his current account had a credit balance of $\text{₦}150,000$ .

During the year ended 31st December 2025, the following transactions occurred:
- Interest on capital is allowed at $5\%$ per annum on opening capital balances.
- Ade is entitled to an annual partner salary of $\text{₦}200,000$ .
- Ade made total drawings of $\text{₦}180,000$ during the year.
- Interest charged on Ade's drawings was $\text{₦}10,000$ .
- The net profit available for distribution (divisible profit) was $\text{₦}750,000$ .

What is the balance on Ade's current account as at 31st December 2025?

₦670,000 credit

₦1,870,000 credit

₦1,050,000 credit

₦520,000 credit

Show answer & explanation

Answer: ₦670,000 credit

Answer

₦670,000 credit

Under the fixed capital account system, fixed capital accounts remain unaltered while routine transactions (interest on capital, salaries, share of profit, drawings, and interest on drawings) pass through the current account. Crediting the opening balance (₦150,000), interest on capital (₦60,000), salary (₦200,000), and profit share (₦450,000) gives total credits of ₦860,000. Subtracting the debits for drawings (₦180,000) and interest on drawings (₦10,000) leaves a closing credit balance of ₦670,000.

Step-by-Step Solution

Calculate Ade's entitlements credited to his Current Account

Interest on Capital:

5\% \times \text{₦}1,200,000 = \text{₦}60,000

; Salary:

\text{₦}200,000

; Profit Share:

\frac{3}{5} \times \text{₦}750,000 = \text{₦}450,000

Under the fixed capital account system, partner appropriations such as salary, interest on capital, and share of profit are credited to the partner's current account.

Sum total credit items in Ade's Current Account

Opening Balance (Credit) + Interest on Capital + Salary + Share of Profit =

\text{₦}150,000 + \text{₦}60,000 + \text{₦}200,000 + \text{₦}450,000 = \text{₦}860,000

All additions to a partner's current account increase the credit side of the account.

Calculate total debit items in Ade's Current Account

Drawings + Interest on Drawings =

\text{₦}180,000 + \text{₦}10,000 = \text{₦}190,000

Drawings and interest on drawings reduce the partner's equity in the business and are debited to the current account.

Determine the net ending balance of the Current Account

Total Credits - Total Debits =

\text{₦}860,000 - \text{₦}190,000 = \text{₦}670,000\text{ credit}

Subtracting total debits from total credits yields the net credit balance at year-end.

Key Concept

Fixed Capital Account System in Partnership Accounting

Estimated Time:2m 0s

Question 7Question →

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

Show answer & explanation

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

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.

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.

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.

Question 8Question →

Kofi and Segun are partners in a firm operating a fixed capital account system. On 1st January 2025, Segun's current account had a credit balance of $\text{₦}120,000$ . During the year ended 31st December 2025, the following transactions occurred in respect of Segun:
- Partnership salary: $\text{₦}180,000$
- Interest on capital: $\text{₦}40,000$
- Personal drawings made: $\text{₦}150,000$
- Interest charged on drawings: $\text{₦}10,000$
- Share of profit: $\text{₦}210,000$
- Interest on loan advanced by Segun to the firm: $\text{₦}30,000$ (paid directly into his personal bank account)

What is the balance on Segun's Current Account as at 31st December 2025?

₦390,000 Credit

₦420,000 Credit

₦400,000 Credit

₦410,000 Credit

Show answer & explanation

Answer: ₦390,000 Credit

Answer

The balance on Segun's Current Account as at 31st December 2025 is ₦390,000 Credit.

Under a fixed capital account system, partner capital remains fixed while daily transactions, appropriations, and drawings pass through the current account. Segun's current account is credited with his opening balance (₦120,000), salary allowance (₦180,000), interest on capital (₦40,000), and share of profit (₦210,000), totaling ₦550,000. It is debited with drawings (₦150,000) and interest on drawings (₦10,000), totaling ₦160,000. The net closing balance is ₦550,000 - ₦160,000 = ₦390,000 Credit. Interest on loan paid into his bank account is a financial charge in the Profit and Loss Account and does not affect the current account.

Step-by-Step Solution

Identify items to credit to Segun's Current Account

Total Credit items = Opening Credit Balance (₦120,000) + Partnership Salary (₦180,000) + Interest on Capital (₦40,000) + Share of Profit (₦210,000) = ₦550,000.

Under a fixed capital system, all appropriations, entitlements, and opening credit balances increase the partner's current account balance on the credit side.

Identify items to debit to Segun's Current Account

Total Debit items = Personal Drawings (₦150,000) + Interest on Drawings (₦10,000) = ₦160,000.

Drawings and interest on drawings reduce the partner's balance and must be placed on the debit side of the current account.

Examine the non-current account item (Interest on Loan)

Interest on partner's loan (₦30,000) is excluded from the current account calculation.

Interest on partner loan is a charge against profit in the main Profit and Loss Account and paid via bank/cash, not an appropriation credited to the current account.

Calculate the net closing Current Account balance

Net balance = ₦550,000 (Credits) - ₦160,000 (Debits) = ₦390,000 Credit.

The excess of credit entries over debit entries yields a closing credit balance.

Key Concept

Fixed Capital System and Partner Current Account Preparation

Question 9Question →

Bisi and Audu are partners in a business entity that operates a fluctuating capital account system. On 1st January 2025, Bisi's capital account had a credit balance of $\text{₦}1,500,000$ . For the year ended 31st December 2025, the following details relate to Bisi:
- Additional capital introduced: $\text{₦}300,000$
- Share of net profit: $\text{₦}450,000$
- Interest on capital: $\text{₦}75,000$
- Annual partner salary: $\text{₦}120,000$
- Total cash drawings: $\text{₦}200,000$
- Interest on drawings: $\text{₦}15,000$

What is the closing balance of Bisi's capital account as at 31st December 2025?

\text{₦}1,800,000

\text{₦}2,660,000

\text{₦}2,230,000

\text{₦}2,245,000

Show answer & explanation

Answer: $\text{₦}2,230,000$

Answer

\text{₦}2,230,000

Under the fluctuating capital account system, only one account (the Capital Account) is maintained for each partner. All capital injections, profit shares, salaries, and interest on capital increase the capital balance (credited), while all drawings and interest on drawings decrease the capital balance (debited). Adding all additions (

\text{₦}1,500,000 + \text{₦}300,000 + \text{₦}450,000 + \text{₦}75,000 + \text{₦}120,000 = \text{₦}2,445,000

) and subtracting all deductions (

\text{₦}200,000 + \text{₦}15,000 = \text{₦}215,000

) results in a closing credit balance of

\text{₦}2,230,000

Step-by-Step Solution

Calculate total credits to Bisi's capital account

\text{₦}1,500,000 + \text{₦}300,000 + \text{₦}450,000 + \text{₦}75,000 + \text{₦}120,000 = \text{₦}2,445,000

Under the fluctuating capital account system, opening capital, additional capital, profit share, interest on capital, and salaries are credited to the capital account.

Calculate total debits to Bisi's capital account

\text{₦}200,000 + \text{₦}15,000 = \text{₦}215,000

Drawings and interest on drawings reduce the partner's equity in the business and are debited to the capital account.

Compute the closing capital balance

\text{₦}2,445,000 - \text{₦}215,000 = \text{₦}2,230,000

Deducting total debits from total credits yields the net closing capital credit balance.

Key Concept

Fluctuating Capital Account System

Question 10Question →

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

Show answer & explanation

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

\text{₦}500,000 + \text{₦}100,000 + \text{₦}80,000 - \text{₦}50,000 = \text{₦}630,000

Step-by-Step Solution

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.

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

Question 11Question →

Aminu and Folake are partners in a firm. On 1st January 2025, Aminu's fixed capital account balance was $\text{₦}1,200,000$ and his current account had a credit balance of $\text{₦}150,000$ . On 1st July 2025, Aminu introduced additional capital of $\text{₦}300,000$ . The partnership agreement provides for interest on capital at $10\%$ per annum, an annual salary to Aminu of $\text{₦}200,000$ , interest on drawings of $\text{₦}12,000$ , and a share of residual profit of $\text{₦}350,000$ . Aminu's drawings during the year amounted to $\text{₦}180,000$ . If the firm converts to a fluctuating capital account system at the end of the year, what is the closing balance of Aminu's capital account at 31st December 2025?

Show answer & explanation

Answer: 2143000

Answer

The closing balance of Aminu's fluctuating capital account at 31st December 2025 is ₦2,143,000.

The closing balance under the fluctuating capital account system combines all partner equity transactions into a single account. Opening capital (₦1,200,000), opening credit current account balance (₦150,000), additional capital (₦300,000), interest on capital (₦135,000), partner salary (₦200,000), and share of profit (₦350,000) are credited, giving total credits of ₦2,335,000. Drawings (₦180,000) and interest on drawings (₦12,000) are debited (totaling ₦192,000). The net closing balance is ₦2,335,000 - ₦192,000 = ₦2,143,000.

Step-by-Step Solution

Calculate interest on capital for Aminu

₦135,000

Interest on opening capital of ₦1,200,000 at 10% per annum for 1 full year is ₦120,000. Interest on additional capital of ₦300,000 for 6 months (1st July to 31st December) at 10% per annum is ₦15,000 (₦300,000 × 10% × 6/12). Total interest on capital = ₦120,000 + ₦15,000 = ₦135,000.

Sum all credit entries in the fluctuating capital account

₦2,335,000

Under a fluctuating capital system, opening capital, current account balances, additions, and partner appropriations are combined. Total Credits = Opening Capital (₦1,200,000) + Opening Current Account (₦150,000) + Additional Capital (₦300,000) + Interest on Capital (₦135,000) + Partner Salary (₦200,000) + Share of Profit (₦350,000) = ₦2,335,000.

Sum all debit entries in the fluctuating capital account

₦192,000

Debit items that reduce partner equity include Drawings (₦180,000) + Interest on Drawings (₦12,000) = ₦192,000.

Calculate closing capital account balance

₦2,143,000

Subtract total debits from total credits: ₦2,335,000 - ₦192,000 = ₦2,143,000.

Key Concept

Under a fluctuating capital account system, all capital additions, initial current account balances, share of profits, salaries, interest on capital, drawings, and interest on drawings are recorded directly in a single capital account.

Question 12Question →

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 $\text{₦}45,000$ . For the year ended 31st December 2025, Emeka was entitled to a partner's salary of $\text{₦}180,000$ , interest on capital of $\text{₦}35,000$ , and a share of profit of $\text{₦}110,000$ . During the year, Emeka's total drawings amounted to $\text{₦}95,000$ and interest on drawings charged was $\text{₦}5,000$ . What is the closing balance of Emeka's Current Account as at 31st December 2025?

\text{₦}270,000\text{ credit}

\text{₦}180,000\text{ credit}

\text{₦}370,000\text{ credit}

\text{₦}190,000\text{ credit}

Show answer & explanation

Answer: $\text{₦}180,000\text{ credit}$

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

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.

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.

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

Question 13Question →

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 $\text{₦}150,000$ . For the year ended 31st December 2025, the accounting records revealed the following:

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

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

\text{₦}550,000

credit

\text{₦}400,000

credit

\text{₦}1,070,000

credit

\text{₦}250,000

debit

Show answer & explanation

Answer: $\text{₦}550,000$ credit

Answer

\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 (

\text{₦}150,000 + \text{₦}420,000 + \text{₦}60,000 + \text{₦}180,000 = \text{₦}810,000

) and deducting total debit entries (

\text{₦}250,000 + \text{₦}10,000 = \text{₦}260,000

) gives a closing credit balance of

\text{₦}550,000

Step-by-Step Solution

Sum all credit items for the partner's current account.

Total Credits = Opening Credit Balance (

\text{₦}150,000

) + Share of Profit (

\text{₦}420,000

) + Interest on Capital (

\text{₦}60,000

) + Partner Salary (

\text{₦}180,000

) =

\text{₦}810,000

In a fixed capital system, partner entitlements and opening credit balances are recorded on the credit side of the current account.

Sum all debit items for the partner's current account.

Total Debits = Cash Drawings (

\text{₦}250,000

) + Interest on Drawings (

\text{₦}10,000

) =

\text{₦}260,000

Drawings and charges imposed on the partner reduce their claim against the firm and are posted to the debit side.

Calculate the closing balance by subtracting total debits from total credits.

Closing Balance =

\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

Question 14Question →

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 balance

₦750,000 credit balance

₦450,000 credit balance

₦350,000 credit balance

Show answer & explanation

Answer: ₦430,000 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

Calculate the total credit entries to Musa's Current Account.

₦120,000 (Opening Credit Balance) + ₦350,000 (Share of Profit) + ₦40,000 (Interest on Capital) + ₦80,000 (Salary) = ₦590,000 Credit.

Under a fixed capital system, all partner entitlements and profit allocations are credited to the partner's Current Account.

Calculate the total debit entries to Musa's Current Account.

₦150,000 (Drawings) + ₦10,000 (Interest on Drawings) = ₦160,000 Debit.

Drawings and charges imposed on the partner reduce their equity share and are debited to the Current Account.

Determine the net closing balance of the Current Account.

₦590,000 (Credit) - ₦160,000 (Debit) = ₦430,000 Credit balance.

The excess of total credits over total debits yields a credit closing balance.

Key Concept

Partnership Current Account Preparation under Fixed Capital System

Fixed and Fluctuating Capital Accounts

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