- Fixed capital account
- Fluctuating capital account
- Worked example
FIXED CAPITAL ACCOUNT
The amount put into the business by each partner will not change. The capital will remain fixed. In order to preserve the capital intact, a current account will be prepared. The current account will be debited with interest on drawings, drawings and credited with interest on capital, share of profit and partners salary.
Example: capital and current account of James and Joy given in the previous lesson, Partnership Profit and Loss Appropriation
FLUCTUATING CAPITAL ACCOUNT
This can be referred to as fluctuating capital account. The capital account represents a mixture of capital and undrawn profit. The interest on capital, partner’s salary and share of profit are credited to the capital account. The debit side will show drawings and interest on drawings.
Example: using the above example:
ADMISSION OF A NEW PARTNER AND GOODWILL ACCOUNT
DEFINITION OF GOODWILL
Goodwill can be defined as the excess of the purchases consideration over the total value of assets less liabilities.
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