Identify the true statement in respect of the Fixed Capital Method for a Partnership Firm :-

In the Fixed Capital Method, two separate accounts are maintained for each partner:

1. Capital Account
2. Current Account

The Capital Account records only the permanent capital contributed by partners. This account remains unchanged unless there is:

• Additional capital introduced permanently, or
• Capital withdrawn permanently

All other transactions like share of profit/loss, drawings, interest on capital, salary, commission, etc. are recorded in the Current Account.

Since the Capital Account represents the permanent investment made by the partner in the firm, it always shows what the firm owes to the partner. This is a liability for the firm.

Therefore, the Partners' Capital Account will always have a credit balance (positive balance) in the Fixed Capital Method.

The balance cannot become:

• Negative/Debit → This would mean the partner owes money to the firm on their capital, which doesn't happen in Fixed Capital Method
• Zero → This would mean no capital has been contributed, which is not possible for an existing partner
• Fluctuating → The whole purpose of this method is to keep capital fixed

Note: If you're thinking about drawings or losses reducing the capital - remember, these are recorded in the Current Account, not the Capital Account in this method. The Current Account can have debit or credit balance, but the Capital Account remains positive.

Option 1 is correct.