Question : Assertion (A) : In the case of the Fixed Capital Method, a partner's capital account does not show a debit balance despite regular and consistent losses year after year.
Reason (R): All transactions involving loss or profit, drawings, salaries, and so on are recorded in the current account rather than the capital account in the case of fixed capital.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Only Assertion (A) is correct
Option 4: Only Reson (R) is correct
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : When using the Fixed Capital Method. In current account, all regular transactions such as interest on capital, drawings, salary, commission, and profit distribution are recorded. As a result, under the Fixed Capital Method, the Capital account always has a credit balance.
Hence the correct answer is option 1.
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