About Fluctuating Capital Account

Capital records are a major difference between a single proprietorship and a partnership firm. When operating as a single proprietor, there will be just one capital account; however, in a partnership, several capital accounts can be established for each partner.

It is possible to keep the partnership capital account in any of the following two ways:

  1. Fixed Capital Account
  2. Fluctuating Capital Account

Meaning of a Fluctuating Capital Account

The term "fluctuating" refers to a state of change or instability. The changing capital account is also a case in point. As the name implies, the partners' capital is constantly in flux while using the fluctuating capital account.

Features of a Fluctuating Capital Account

There is just one account kept for each partner in the fluctuating-capital system. Drawdowns, interest on draws, capital interest on drawdowns and salaries are all recorded in the capital account. As a result, the capital account's balance changes constantly. The partners' capital accounts should be produced using this procedure in the absence of specific instructions.

Maintenance of a Fluctuating Capital Account

Each of the firm's partners will have their own capital account, which will be credited with the initial capital investment they each make as well as any subsequent capital investment they make over the accounting period.

The capital account of the partners will be debited for any modifications that result in a loss in capital. One or both partners may be required to make modifications to their contributions, such as taking out a loan or paying interest on an existing loan.

A partner's capital account receives credit for any activities or modifications that result in an increase in capital. Partners' salaries and interest on their capital are only two examples of modifications that can be made.

Balance sheets indicate each partner's capital account balance with their debit and credit balances on the asset and liability sides, respectively.

Following are some of the multiple choice questions on the Fluctuating Capital Account with answers that will help the students in developing their knowledge.

Fluctuating Capital Account MCQ

1. Rani and Suman are in partnership with fixed capitals of Rs, 80,000 and Rs. 60,000, respectively. During the year 2015-16, Rani withdrew Rs. 10,000 from her capital and Suman Rs. 15,000. Profits before charging interest on capital was Rs. 50,000. Rani and Suman shared profits in the ratio of 3:2. Calculate the amounts of interest on their capitals @ 12% p.a. for the year ended March 31, 2016.

  • Rani, Rs. 6,000; Suman, Rs. 9,300
  • Rani, Rs. 9,000; Suman, Rs. 6,300
  • Rani, Rs. 8,000; Suman, Rs. 6,500
  • Rani, Rs. 19,000; Suman, Rs. 16,300

2. Is rent paid to a partner appropriation of profits?

  • It is appropriation of profit
  • It is not appropriation of profit
  • If partner’s contribution as capital is maximum
  • If partner is a working partner.

3. The P & L Appropriation A/c shows how the profits of the business are being used and shared among its owners

  • True
  • False

4. Capital of the partners are maintained by:

  • fluctuating capital methods
  • fixed capital method
  • by any two above methods
  • None of these

5. In the absence of partnership deed, the following rule will apply :

  • No interest on capital
  • Profit sharing in capital ratio
  • Profit based salary to working partner
  • 9% p.a. interest on drawings

6. To which account salary and commission to partners and interest on capital be debited?

  • Current Account
  • Capital Account
  • Profit and Loss Account
  • Profit and Loss Appropriation Account

7. Current Account of a partner

  • Will always have a credit balance.
  • Will always have a debit balance
  • May have a debit balance or a credit balance.
  • May have a debit balance or a credit balance.

8. In the absence of Partnership Deed, the interest is allowed on partner’s capital:

  • @ 5% p.a.
  • @ 6% p.a
  • @ 12% p.a.
  • No interest is allowed

9. In the absence of an agreement to the contrary, partners share profits and losses in the

  • ratio of their capitals in the beginning of the year.
  • ratio of their capitals at the end of the year.
  • ratio of average capital
  • equal ratio

10. According to Profit and Loss Account, the net profit for the year is ₹4,20,000. Salary of a partner is ₹5,000 per month and the commission of another partner is ₹10,000. The interest on drawings of partners is ₹4,000. The divisible profit as per Profit and Loss Appropriation Account will be :

  • 3,54,000
  • 3,46,000
  • 4,09,000
  • 4,01,000

11. A partner introduced additional capital of ₹30,000 and advanced a loan of ₹40,000 to the firm at the beginning of the year. Partner will receive year’s interest:

  • 4,200
  • 2,400
  • Nil
  • 1,800

12. On 1st June 2018 a partner introduced in the firm additional capital ₹50,000. In the absence of partnership deed, on 31st March 2019 he will receive interest :

  • ₹3,000
  • Zero
  • 2,500
  • 1,800

13. Verma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be charged @ 6% p.a. Verma withdraws Rs. 2,000 per month starting from April 01, 2019 to March 31, 2020. Kaulwithdrew Rs, 3,000 per quarter, starting from April 01, 2019. Calculate interest on partner’s drawings.

  • Verma 780 and Kaul 450
  • Verma 450 and Kaul 780
  • Verma 870 and Kaul 540
  • Verma 540 and Kaul 870

14. Ram and Syam are partners sharing profits/losses equally. Ram withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year 2015-16 for personal expenses. If interest on drawings is charged @ 5% p.a. Calculate interest on the drawings of Ram.

  • 225
  • 300
  • 325
  • 600

15. Ram & Shyam are partners with the capital of Rs.25,000 and Rs.15,000 respectively. Interest payable on capital is 10% p.a. Find the profit to be shared by the partners if profit earned by the firm before interest charges is Rs.2,400.

  • Rs.2500 & RS.1500
  • Rs.1500 & RS.900
  • Rs.1200 & RS.1200
  • None of the above

16. Himani and Kajal are partners in a firm, sharing profits and losses in the ratio of 5:3. The balance in their fixed capital accounts, on April 1, 2016 were: Himani, Rs. 6,00,000 and Kajal, Rs. 8,00,000. The profit of the firm for the year ended March 31, 2017 was Rs, 1,26,000. Calculate their shares of profits, when there is no agreement in respect of interest on capital

  • Profit : Priya, Rs. 76,500; Kajal, Rs. 67,250
  • Profit : Priya, Rs. 78,750; Kajal, Rs. 47,250
  • Profit : Priya, Rs. 75,780; Kajal, Rs. 74,250
  • None of these

17. Which of the following elements of the nature of partnership is so important that there would be no partnership, if this element is absent?A

  • Agreement
  • Sharing of Profit
  • Lawful Business
  • Mutual Agency

18. Mohan and Shyam are partners in a firm. State whether the claim is valid if the partnership agreement is silent in the following matters:Mohan is an active partner. He wants a salary of Rs. 10,000 per year;

  • valid
  • invalid

19. A is a partner in a firm .He withdrew rupees 10000 at the end of each quarter during the year ended 31st March 2017. His interest on drawings @ 9% will be

  • 1350
  • 2250
  • 900
  • 1800

20. Rani and Shyam is partner in a firm. They are entitled to interest on their capital but the net profit was not sufficient for paying his interest, then the net profit will be distributed among partner in

  • 1 : 2
  • Profit Sharing Ratio
  • Capital Ratio
  • Equally

21. Interest on capital will be paid to the partners if provided for in the partnership deed but only out of:

  • Profits
  • Reserves
  • Accumulated Profits
  • Goodwill

22. A partner withdraws rupees 8000 each 1st April and 1st October .interest on his drawing is drawing @ 6% per annum on 31st March will be

  • 480
  • 720
  • 240
  • 960

23. Y is a partner in a Firm. He withdrew regularly 3,000 rupees at the end every month for six months ending 31st March 2016 if interest on drawing is charged @ 10% per annum, the interest charged will be

  • 375
  • 450
  • 525
  • 900

24. A,B and C were partner in a firm sharing Profit in the ratio of 3:2:1 during the year the firm earned profit of Rs. 84,000.Calculate the amount of Profit or Loss transferred to the capital A/c of B.

  • Loss Rs. 87,000
  • Profit Rs.28,000
  • profit Rs. 87,000
  • Profit Rs.14,000

25. A and B are partners in partnership firm without any agreement. A has given a loan of ₹50,000 to the firm. At the end of year loss was incurred in the business. Following interest may be paid to A by the firm :

  • @5% Per Annum
  • @6% Per Annum
  • @ 6% Per Month
  • As there is a loss in the business, interest can’t be paid

26. Which one of the following is NOT an essential feature of a partnership?

  • There must be an agreement
  • There must be a business
  • The business must be carried on for profits
  • The business must be carried on by all the partners

27. The interest on capital accounts of partners under fluctuating capital account method is credited to :

  • Interest Account
  • Profit and Loss Account
  • Partners' Capital Account
  • Partners' Current Account

28. Partners current accounts are opened when their capital accounts are:

  • Fixed and Fluctuating both
  • Fixed
  • None of these
  • Fluctuating

29. Which of the following transactions is always recorded in the partner's capital account irrespective of whether the partners capitals are fixed or fluctuating?Additional capital introduced by a partnerPermanent withdrawal of capital by a partnerboth (b) and (c)

  • Additional capital introduced by a partner
  • Permanent withdrawal of capital by a partner
  • both (a) and (b)
  • Interest on partner's loan

30. In the absence of partnership deed, interest on loan of a partner is allowed :

  • @8% per annum
  • @6% per annum
  • no interest is allowed
  • @12% per annum

31. If equal amount is withdrawn by partner in the beginning of each month during a month of 6 months interest on the total amount will be charged for......month

  • 3.5
  • 2.5
  • 3
  • 6

32. Which one of the following items is recorded in the Profit and Loss appropriation account

  • Interest on Loan
  • Partner Salary
  • Rent paid to Partner’s
  • Managers Commission

33. By virtue of Section 464 of the Companies Act, 2013 the Central Government is empowered to prescribe maximum number of partners in a firm but the number of partners cannot be more than ___________.

  • 50
  • 100
  • 20
  • 10

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