CUET UG Accountancy Booster Test 2 Capital Accounts of Partners -

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CUET UG Accountancy Booster Test 2 Capital Accounts of Partners

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 2 Capital Accounts of Partners

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QUESTION 1 OF 20

From a legal and dissolution perspective, what is the ultimate analytical purpose of maintaining distinct capital and current accounts for partners?

Answer Review

1 From a legal and dissolution perspective, what is the ultimate analytical purpose of maintaining distinct capital and current accounts for partners?

A To satisfy employee compensation laws

B To limit the liability of the partners to third parties

C To determine the exact internal claim of each partner against the firm's net assets upon settlement

D To track the firm's total revenue generated from sales

💡 Short Explanation

Accounts determine partner entitlement. Important during dissolution settlement. Helps calculate net claims accurately.

✅ Correct Answer Explanation

Capital and current accounts help determine the exact amount due to each partner when the firm settles its net assets. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Employee laws unrelated.
Option B → Liability not limited.
Option D → Revenue tracking unrelated.

🎯 Strategy

Used

Conceptual Interpretation

Application:

�� Identify ultimate accounting purpose.

Final Logic:

�� Accounts define partner settlement rights.

🧠 Memory Trick

"Capital Accounts Show Final Claims"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Purpose of Capital Accounts – Page reference may vary by edition.

2 If a partner takes a loan from the firm, where is this transaction primarily recorded, and does it immediately affect the capital account under the fluctuating method?

A Credited to Capital Account immediately

B Debited to P&L Appropriation Account

C It is treated as additional capital

D It is recorded in a separate 'Partner's Loan Account' and does not directly hit the capital account initially unless specified

💡 Short Explanation

Loan recorded separately. Not immediate capital adjustment. Separate liability maintained.

✅ Correct Answer Explanation

Partner loans are generally maintained in a separate loan account and do not directly affect capital accounts initially. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Not direct capital credit.
Option B → P&L appropriation unrelated.
Option C → Loan not capital contribution.

🎯 Strategy

Used

Accounting Classification

Application:

�� Distinguish loans from capital.

Final Logic:

�� Separate account treatment applies.

🧠 Memory Trick

"Loan ≠ Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Transactions Recorded – Page reference may vary by edition.

3 In a firm using the fixed capital method, what is the mathematical formula to find the Total Partner's Equity at the end of the year?

A Total Equity = Closing Fixed Capital Balance + Closing Current Account Balance

B Total Equity = Closing Fixed Capital Balance - Drawings

C Total Equity = Opening Fixed Capital Balance + Profit

D Total Equity = Closing Current Account Balance only

💡 Short Explanation

Total equity combines both accounts. Fixed account shows investment. Current account shows adjustments.

✅ Correct Answer Explanation

Under the fixed capital method: Total Equity = Closing Fixed Capital + Closing Current Account Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Current account ignored.
Option C → Incomplete formula.
Option D → Fixed capital omitted.

🎯 Strategy

Used

Formula Recall

Application:

�� Combine fixed and current balances.

Final Logic:

�� Both accounts form total equity.

🧠 Memory Trick

"Equity = Capital + Current"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fixed Capital Method – Page reference may vary by edition.

4 Evaluate the following statements regarding the conversion from fluctuating to fixed capital method:
(i) Opening balances of fluctuating accounts become the opening balances of fixed accounts.
(ii) A new current account must be opened with a zero balance.
(iii) Past accumulated profits in the fluctuating account must be withdrawn immediately.

A Only (i) and (iii)

B Only (i) and (ii)

C Only (ii) and (iii)

D All of the above

💡 Short Explanation

Opening balances transferred. Current accounts newly created. Withdrawal of past profits unnecessary.

✅ Correct Answer Explanation

Statements (i) and (ii) are correct. Statement (iii) is incorrect because accumulated balances need not be withdrawn. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement (iii) false.
Option C → Statement (i) omitted.
Option D → All statements not correct.

🎯 Strategy

Used

Statement Verification

Application:

�� Evaluate conversion procedure carefully.

Final Logic:

�� Only two statements valid.

🧠 Memory Trick

"Convert Method, Don't Withdraw Profits"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Methods of Capital Accounts – Page reference may vary by edition.

5 Assertion (A): The Fixed Capital method provides a clearer picture of the original investment committed by a partner over time.
Reason (R): It isolates all operational fluctuations (profits, losses, drawings) into a separate current account, leaving the core investment untampered.

A Both A and R are true, and R is the correct explanation

B Both A and R are true, but R is not the correct explanation

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Fixed capital remains stable. Operational changes separated. Reason explains assertion perfectly.

✅ Correct Answer Explanation

Fixed capital method keeps original investment unchanged while adjustments are recorded separately in current accounts. Hence, both Assertion and Reason are true, and Reason correctly explains Assertion.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains.
Option C → Reason true.
Option D → Assertion true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Verify explanation relationship.

Final Logic:

�� Separate current accounts preserve capital clarity.

🧠 Memory Trick

"Fixed Means Original Investment Protected"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fixed Capital Method Basics – Page reference may vary by edition.

6 Match the following complex accounting outcomes.

List 1	List 2
1. Debit balance in Current A/c	a. Liability side of Balance Sheet
2. Credit balance in Current A/c	b. Asset side of Balance Sheet
3. Capital Withdrawal	c. Credited to Current A/c
4. Interest on Capital	d. Debited to Fixed Capital A/c

A 1-a, 2-b, 3-c, 4-d

B 1-d, 2-c, 3-b, 4-a

C 1-b, 2-a, 3-d, 4-c

D 1-c, 2-d, 3-a, 4-b

💡 Short Explanation

Debit current balance treated as asset. Credit balance shown as liability. Interest credited to current account.

✅ Correct Answer Explanation

Correct matching: Debit Current A/c → Asset side Credit Current A/c → Liability side Capital withdrawal → Debited to Fixed Capital A/c Interest on Capital → Credited to Current A/c Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Current account sides reversed.
Option B → Incorrect pairings.
Option D → Entire sequence mismatched.

🎯 Strategy

Used

Option Grouping

Application:

�� Match accounting treatments accurately.

Final Logic:

�� Only Option C aligns correctly.

🧠 Memory Trick

"Debit Current = Asset, Credit Current = Liability"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Current Account Features – Page reference may vary by edition.

7 Arrange the chronological order of accounting entries during year-end closing under fixed capital method:
1. Transfer Net Profit to P&L Appropriation
2. Debit P&L Appropriation & Credit Partner's Current A/c with profit share
3. Debit P&L Appropriation & Credit Partner's Current A/c with Interest on Capital

A 1, 2, 3

B 3, 2, 1

C 2, 1, 3

D 1, 3, 2

💡 Short Explanation

Net profit transferred first. Interest on capital adjusted next. Residual profit distributed finally.

✅ Correct Answer Explanation

Correct sequence: Transfer net profit Credit interest on capital Distribute remaining profit Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Profit share comes after interest.
Option B → Sequence reversed.
Option C → Net profit transfer must start process.

🎯 Strategy

Used

Sequential Logic

Application:

�� Arrange appropriation entries correctly.

Final Logic:

�� Interest precedes final distribution.

🧠 Memory Trick

"Profit → Interest → Distribution"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fixed Method Entries – Page reference may vary by edition.

8 A partner makes two drawings: Rs 10,000 out of capital, and Rs 15,000 against profit. Under the fixed capital method, how are these recorded?

A Rs 25,000 debited to Current Account

B Rs 10,000 debited to Capital Account; Rs 15,000 debited to Current Account

C Rs 15,000 debited to Capital Account; Rs 10,000 debited to Current Account

D Rs 25,000 debited to Capital Account

💡 Short Explanation

Capital withdrawal affects capital account. Profit drawings affect current account. Separate treatment required.

✅ Correct Answer Explanation

Under fixed capital method: Capital withdrawal → Capital A/c Profit drawings → Current A/c Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Capital withdrawal ignored.
Option C → Amounts reversed.
Option D → Profit drawings misplaced.

🎯 Strategy

Used

Classification Logic

Application:

�� Separate capital and profit drawings.

Final Logic:

�� Different accounts used for different purposes.

🧠 Memory Trick

"Capital Drawings → Capital A/c"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Drawings Adjustments – Page reference may vary by edition.

9 M's current account has a debit balance of Rs 12,000. M's share of profit is Rs 20,000, interest on capital is Rs 5,000, and drawings are Rs 18,000. Interest on drawings is Rs 1,000. What is the final balance of the current account?

A Rs 14,000 Credit

B Rs 10,000 Debit

C Rs 6,000 Debit

D Rs 6,000 Credit

💡 Short Explanation

Debit balance carried forward. Add credits and deduct drawings. Final balance remains debit.

✅ Correct Answer Explanation

Credits: 20000 + 5000 = 25000 Debits: 12000 + 18000 + 1000 = 31000 Final Balance: 31000 - 25000 = 6000 Debit Balance = Rs. 6,000 31000 - 25000 = 6000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Balance direction incorrect.
Option B → Miscalculation.
Option D → Debit/Credit reversed.

🎯 Strategy

Used

Debit-Credit Balancing

Application:

�� Compare total debits and credits.

Final Logic:

�� Debit exceeds credit by Rs. 6,000.

🧠 Memory Trick

"Higher Debit = Debit Balance"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Current Account Balances – Page reference may vary by edition.

10 If Partner A has a fixed capital of Rs 1,00,000 and a current account debit balance of Rs 20,000, how must this be disclosed in the Balance Sheet to comply with standard accounting practices?

A Rs 1,00,000 on the Liabilities side and Rs 20,000 on the Assets side

B Net Rs 80,000 on the Liabilities side

C Net Rs 80,000 on the Assets side

D Rs 1,00,000 on the Assets side and Rs 20,000 on the Liabilities side

💡 Short Explanation

Fixed capital shown as liability. Debit current balance shown as asset. Separate disclosure required.

✅ Correct Answer Explanation

A debit balance in current account represents receivable from partner and appears on asset side, while fixed capital remains liability. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Netting not preferred.
Option C → Capital cannot become asset.
Option D → Classification reversed.

🎯 Strategy

Used

Balance Sheet Classification

Application:

�� Identify disclosure treatment.

Final Logic:

�� Separate presentation required.

🧠 Memory Trick

"Debit Current = Asset"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Balance Sheet Treatment – Page reference may vary by edition.

11 What is a potential analytical disadvantage of using the fluctuating capital method compared to the fixed method?

A It requires more ledger accounts

B It obscures the historical original capital investment of the partner due to the commingling of operational adjustments

C It fails to account for drawings

D It is illegal under the Partnership Act, 1932

💡 Short Explanation

All adjustments mixed together. Original investment becomes unclear. Analytical clarity reduced.

✅ Correct Answer Explanation

Fluctuating capital combines profits, drawings, and adjustments, making original capital difficult to identify separately. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Fewer accounts used.
Option C → Drawings recorded properly.
Option D → Method fully legal.

🎯 Strategy

Used

Comparative Analysis

Application:

�� Compare fixed and fluctuating methods.

Final Logic:

�� Fluctuating method reduces clarity of original investment.

🧠 Memory Trick

"Fluctuating Mixes Everything"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fluctuating Capital Method – Page reference may vary by edition.

12 Under the fluctuating method, which of the following directly impact the single capital account?
(i) Rectification of past errors in interest on capital
(ii) Partner's share of goodwill upon admission
(iii) Guarantee of minimum profit deficiency borne by a partner

A Only (i) and (ii)

B Only (ii) and (iii)

C Only (i) and (iii)

D All (i), (ii), and (iii)

💡 Short Explanation

Single capital account absorbs everything. All adjustments entered directly. No separate current account exists.

✅ Correct Answer Explanation

Under fluctuating method, all partnership adjustments directly affect the capital account. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Options A, B, C → Omit valid adjustments.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Apply single-account principle.

Final Logic:

�� Every adjustment impacts capital account.

🧠 Memory Trick

"One Account Handles All"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Direct Adjustments – Page reference may vary by edition.

13 Assertion (A): In a year of net loss, interest on capital must still be credited to fluctuating capital accounts to maintain accurate balances.
Reason (R): Interest on capital is an appropriation of profit, and generally not allowed if the firm suffers a net loss (unless agreed as a charge).

A Both A and R are true

B Both A and R are false

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Interest on capital usually depends on profit. Loss years restrict appropriation. Reason valid.

✅ Correct Answer Explanation

Assertion is false because interest on capital is generally not allowed during losses unless specifically treated as charge. Reason correctly explains this principle. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion false.
Option B → Reason true.
Option C → Reason not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

�� Verify accounting rule carefully.

Final Logic:

�� Appropriation depends on profit availability.

🧠 Memory Trick

"No Profit, No Capital Interest"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Profit and Loss Entries – Page reference may vary by edition.

14 Match the impact of the following factors.

List 1	List 2
1. Drawings against Capital	a. Reduces Divisible Profit
2. Drawings against Profit	b. Does not affect Interest on Capital
3. Interest on Drawings	c. Increases Divisible Profit
4. Interest on Capital	d. Reduces Interest on Capital

A 1-a, 2-b, 3-c, 4-d

B 1-b, 2-c, 3-d, 4-a

C 1-d, 2-b, 3-c, 4-a

D 1-c, 2-a, 3-b, 4-d

💡 Short Explanation

Capital drawings reduce interest eligibility. Interest on drawings increases divisible profit. Interest on capital reduces profit.

✅ Correct Answer Explanation

Correct matching: Drawings against Capital → Reduces Interest on Capital Drawings against Profit → Does not affect Interest on Capital Interest on Drawings → Increases Divisible Profit Interest on Capital → Reduces Divisible Profit Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Matching incorrect.
Option B → Effects reversed.
Option D → Profit impact mismatched.

🎯 Strategy

Used

Impact Matching

Application:

�� Analyze accounting consequences carefully.

Final Logic:

�� Only Option C matches correctly.

🧠 Memory Trick

"Interest on Drawings Adds Profit"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fluctuating Entries – Page reference may vary by edition.

15 A firm with 5 partners decides to shift from a fluctuating to a fixed capital system. How many new ledger accounts must be opened strictly to accommodate this structural change?

A 5

B 10

C 15

D 0

💡 Short Explanation

Each partner requires current account. Fixed capital accounts already exist. Five partners mean five new accounts.

✅ Correct Answer Explanation

Switching to fixed method requires opening one Current Account per partner. 5 partners = 5 new Current Accounts 5 partners = 5 Current Accounts Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Double counting.
Option C → Excessive accounts.
Option D → New accounts required.

🎯 Strategy

Used

Structural Understanding

Application:

�� Identify account requirement during conversion.

Final Logic:

�� One new current account per partner.

🧠 Memory Trick

"One Partner, One Current Account"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Comparison Basis – Page reference may vary by edition.

16 Sequence the process of calculating opening capital from closing capital under the fluctuating method:
1. Add back Drawings
2. Deduct Profit already credited
3. Start with Closing Capital

A 1, 2, 3

B 3, 1, 2

C 2, 3, 1

D 3, 2, 1

💡 Short Explanation

Begin with closing capital. Reverse drawings first. Reverse profits afterward.

✅ Correct Answer Explanation

Correct order: Start with closing capital Add back drawings Deduct credited profits Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Closing capital must begin process.
Option C → Sequence illogical.
Option D → Drawings should reverse before profits.

🎯 Strategy

Used

Reverse Calculation Logic

Application:

�� Undo closing adjustments sequentially.

Final Logic:

�� Reverse process from ending balance.

🧠 Memory Trick

"Closing → Add Drawings → Remove Profit"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Calculation of Opening Capital – Page reference may vary by edition.

17 Partner A's fixed capital on April 1 is Rs 5,00,000. On Oct 1, he introduces Rs 2,00,000. His share of profit is Rs 50,000. He withdrew Rs 10,000 against profit. What is his Fixed Capital balance on March 31?

A Rs 7,40,000

B Rs 5,00,000

C Rs 7,00,000

D Rs 7,50,000

💡 Short Explanation

Fixed capital changes only for capital transactions. Profit drawings affect current account. Additional capital increases fixed balance.

✅ Correct Answer Explanation

Fixed Capital Balance: 500000 + 200000 = 700000 Profit share and profit drawings affect Current Account only. 500000 + 200000 = 700000 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Profit wrongly added.
Option B → Additional capital ignored.
Option D → Incorrect adjustment.

🎯 Strategy

Used

Fixed Capital Rule Application

Application:

�� Include only capital transactions.

Final Logic:

�� Closing fixed capital = Rs. 7,00,000.

🧠 Memory Trick

"Fixed Capital Changes Only with Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fixed Balance Nature – Page reference may vary by edition.

18 If Opening Fluctuating Capital is X. The partner gets Y as salary, Z as profit share. He withdraws W against profit and V against capital. What is the closing capital expression?

A X + Y + Z - W - V

B X + Y + Z - W

C X + Y + Z - V

D X - Y - Z + W + V

💡 Short Explanation

Salary and profit increase capital. Both drawings reduce capital. Fluctuating account absorbs everything.

✅ Correct Answer Explanation

Under fluctuating method: X + Y + Z - W - V Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Capital withdrawal omitted.
Option C → Profit drawings omitted.
Option D → Direction reversed.

🎯 Strategy

Used

Formula Construction

Application:

�� Add increases and subtract decreases.

Final Logic:

�� All adjustments reflected in one account.

🧠 Memory Trick

"Add Income, Subtract Drawings"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Fluctuating Balance Nature – Page reference may vary by edition.

📄 Passage

"All transactions relating to partners of the firm are recorded in the books of the firm through their capital accounts. This includes the amount of money brought in as capital, withdrawal of capital, share of profit, interest on capital, interest on drawings, partner's salary, commission to partners, etc. The difference between the fixed and fluctuating methods lies in whether or not the transactions other than addition/withdrawal of capital are recorded in the capital accounts of the partners."

Based on the passage, if a partner's fixed capital account suddenly shows a lowered credit balance compared to the previous year, which specific transaction must have occurred?

A The partner took heavy drawings against profits

B The firm suffered a severe net loss

C The partner was charged high interest on drawings

D The partner made a withdrawal of capital

💡 Short Explanation

Fixed capital changes only with capital transactions. Profit-related items affect current account. Lower balance implies capital withdrawal.

✅ Correct Answer Explanation

Under fixed capital method, only addition or withdrawal of capital changes fixed capital balance. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Profit drawings affect current account.
Option B → Loss affects current account.
Option C → Interest affects current account.

🎯 Strategy

Used

Conceptual Elimination

Application:

�� Identify transaction affecting fixed capital.

Final Logic:

�� Only capital withdrawal lowers fixed capital.

🧠 Memory Trick

"Only Capital Changes Fixed Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Credit Balance Nature – Page reference may vary by edition.

📄 Passage

According to the passage, why is it theoretically possible for a fluctuating capital account to show a debit balance, while a fixed capital account cannot?

A Fixed capital accounts are protected by insurance

B Fluctuating accounts absorb all negative adjustments like losses and drawings, which can cumulatively exceed the initial capital investment

C The Partnership Act prohibits debit balances in fixed accounts explicitly

D Fluctuating accounts do not record profits, only losses

💡 Short Explanation

Fluctuating account absorbs all adjustments. Heavy losses may exceed capital. Debit balance becomes possible.

✅ Correct Answer Explanation

Since fluctuating capital accounts record all profits, losses, and drawings, cumulative negative adjustments may create a debit balance. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Insurance irrelevant.
Option C → No explicit prohibition.
Option D → Profits also recorded.

🎯 Strategy

Used

Conceptual Understanding

Application:

�� Analyze nature of fluctuating account.

Final Logic:

�� Comprehensive adjustments may create debit balance.

🧠 Memory Trick

"Too Many Losses Can Reverse Capital"

📚 Class XII – Accountancy Part 1 – Chapter: Accounting for Partnership: Basic Concepts – Topic: Debit Possibility in Fluctuating Method – Page reference may vary by edition.

CUET UG Accountancy Booster Test 2 Capital Accounts of Partners

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