Question

Assertion (A): Fixed capital accounts of partners always show credit balances even when the firm suffers losses year after year.

Reason (R): Current accounts of partners are maintained under the fluctuating capital method.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• Only (A) is true.

Answer 1

Only (A) is true.

Explanation:

Fixed capital accounts of partners usually show credit balances even when the firm incurs repeated losses, because such losses are adjusted through the partner’s current accounts, not their fixed capital accounts. However, the reason given is incorrect because current accounts are maintained under the fixed capital method, not the fluctuating method. Therefore, while the assertion is true, the reason is false.