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Fixed and Fluctuating Capital Accounts ISC Class 12

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AccountsISC Class 12 · Fundamentals of Partnership

Fixed and Fluctuating Capital Accounts: ISC Class 12 Accounts

Updated 15 October 2026 · Fact-checked

Under the fixed capital method each partner has a capital account that changes only when capital is introduced or permanently withdrawn, plus a current account for interest, salary, commission, profit share and drawings. Under the fluctuating method there is a single capital account that records all these items, so its balance changes every year.

Fixed method keeps capital flat and routes other items through a current account; fluctuating method records everything in one changing capital account.

Illustration drawn for QuestionBuddy.

Understand Fixed and Fluctuating Capital Accounts

Two ways to keep partners' capital. The CISCE syllabus names both, and the 2025 paper set an assertion-reason item on telling them apart.

1. Fixed capital method. Two accounts per partner:

  • Capital Account: opening capital, capital introduced, capital permanently withdrawn. Nothing else. It always shows a credit balance.
  • Current Account: interest on capital, salary, commission, share of profit (credit side); drawings, interest on drawings, share of loss (debit side). It can show a debit balance when a partner draws more than he earns.

2. Fluctuating capital method. One account per partner. Every item above goes to the capital account, so the balance fluctuates each year. It may, in rare cases, show a debit balance.

Which is used? If the question says 'capitals are fixed', open current accounts. If it is silent, use fluctuating capitals.

Interest on current account balances. A deed may allow interest on credit balances of current accounts and charge interest on debit balances. Credit balance: Interest on Current A/c Dr, To Partner's Current A/c (treated like interest on capital, an appropriation unless the deed says otherwise). Debit balance: Partner's Current A/c Dr, To Interest on Current A/c.

Changing the agreed capital. When partners agree a new total capital to be held in the profit-sharing ratio, compare each partner's existing capital with his new share: the partner below his share brings in cash (Bank Dr, To Capital), the partner above it withdraws (Capital Dr, To Bank). Interest on capital is then worked in two periods: old capital up to the date of change, new capital after it. ISC examiners in 2025 noted candidates ignoring the dates of such changes and taking interest for 12 months when the firm ran for 9.

Permanent and temporary withdrawals. A permanent withdrawal reduces capital (debited to the capital account even under the fixed method) and reduces interest on capital from that date. A temporary withdrawal against expected profit is a drawing (debited to the current account) and attracts interest on drawings.

Opening capital not given. Work back from closing capital: Opening = Closing − credits of the year + debits of the year. With fluctuating capitals and interest on opening capital, write the opening capital as X and solve.

Fixed and Fluctuating Capital Accounts: key facts

Capital Account (fixed method) entries
CreditBalance b/d
CreditBank (capital introduced)
DebitBank (permanent withdrawal)
DebitBalance c/d
Always a credit balance.
Current Account credits
  • Interest on capital
  • Salary
  • Commission
  • Share of profit
  • Interest on credit balance of current account
Under fluctuating capitals these go to the capital account.
Current Account debits
  • Drawings
  • Interest on drawings
  • Share of loss
  • Interest on debit balance of current account
A debit balance appears on the asset side of the Balance Sheet.
Closing current account
Opening balance + Interest on capital + Salary + Commission + Profit share − Drawings − Interest on drawings
Take an opening debit balance as negative.
Interest on capital across a change in capital
Old capital × rate × months before change ÷ 12 + New capital × rate × months after change ÷ 12
Opening fluctuating capital
Closing capital − Interest on capital − Salary − Profit share + Drawings + Interest on drawings
If interest is a % of opening capital, solve for X.

How to answer Fixed and Fluctuating Capital Accounts questions

Capital account questions in ISC Section A are usually part of a 10-mark partnership problem. Get the structure right first.

  1. 1Decide the method: 'fixed capitals' means two accounts per partner; otherwise one fluctuating capital account.
  2. 2Draw columnar accounts (one column per partner) to save time.
  3. 3Post opening balances, then capital introduced or permanently withdrawn with dates.
  4. 4Compute interest on capital period by period, and interest on drawings by the right method.
  5. 5Post all appropriations and drawings to the current account (fixed) or capital account (fluctuating).
  6. 6Balance each account and say whether the balance is credit or debit.

Fixed and Fluctuating Capital Accounts in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

The current account as a running tab

Suppose Farah is a partner in a bakery with a fixed capital of ₹3,00,000. During the year she is credited interest on capital of ₹18,000 and a profit share of ₹42,000, and she takes ₹5,000 home every month for household expenses.

What happens to her capital account and to her current account by the year-end?

Try it first, then show the solutionSolution
  1. Capital account: no capital introduced or withdrawn, so it stays at ₹3,00,000.
  2. Current account: credits 18,000 + 42,000 = ₹60,000; debits 5,000 × 12 = ₹60,000.
  3. Closing current account balance = 60,000 − 60,000 = nil.

Answer: Capital stays ₹3,00,000; the current account ends at nil because she drew exactly what she earned. Had she drawn more, the current account would show a debit balance while the capital stayed intact.

Memory hook: Capital is the house; the current account is the monthly tab.

Tricks to remember Fixed and Fluctuating Capital Accounts

Short memory aids. Say each one aloud once, then use it on a question the same day.

  • Fixed = Two, Fluctuating = One

    Fixed capitals need two accounts per partner (capital and current); fluctuating capitals need one.

    Use it when: Choosing the format.

  • Only cash-in or cash-out touches fixed capital

    Fixed capital moves only when capital is brought in or permanently taken out.

    Use it when: Avoiding wrong postings to the capital account.

  • Current can go red

    A current account may show a debit (red) balance; a fixed capital account cannot.

    Use it when: Assertion-reason and MCQ items.

Fixed and Fluctuating Capital Accounts: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Where interest on capital is posted · 1 mark · MCQBoard level

Under the fixed capital method, interest on capital allowed to a partner is credited to:
(a) Partner's Capital A/c
(b) Partner's Current A/c
(c) Profit and Loss A/c
(d) Interest on Capital A/c only

Try it first, then show the solutionSolution
  1. Fixed capital accounts record only capital introduced or withdrawn.
  2. All appropriations go to the current account.

Answer: (b) Partner's Current A/c

Example 2: Closing current account balances · 3 marks · Short answerBoard level

Ravi and Sam have fixed capitals. Opening current accounts: Ravi ₹12,000 (Cr), Sam ₹5,000 (Dr). For the year: interest on capital Ravi ₹20,000, Sam ₹15,000; salary to Sam ₹24,000; drawings Ravi ₹30,000, Sam ₹36,000; interest on drawings Ravi ₹900, Sam ₹1,100; share of profit ₹40,000 each. Find the closing balances of the current accounts. (3 marks)

Try it first, then show the solutionSolution
  1. Ravi: 12,000 + 20,000 + 40,000 − 30,000 − 900 = ₹41,100 (Cr).
  2. Sam: −5,000 + 15,000 + 24,000 + 40,000 − 36,000 − 1,100 = ₹36,900 (Cr).
  3. Both are credit balances, shown on the liabilities side.

Answer: Ravi ₹41,100 (Cr); Sam ₹36,900 (Cr).

Example 3: Fluctuating capital with interest on drawings · 3 marks · Short answerHarder board level

Uma's capital on 1st April 2025 is ₹2,50,000 (fluctuating). Interest on capital is 10% p.a. Her share of profit for 2025-26 is ₹45,000. She withdrew ₹4,000 in the middle of every month; interest on drawings is 6% p.a. Find her closing capital. (3 marks)

Try it first, then show the solutionSolution
  1. Interest on capital = 2,50,000 × 10% = ₹25,000.
  2. Drawings = ₹48,000; interest on drawings = 48,000 × 6% × 6/12 = ₹1,440.
  3. Closing capital = 2,50,000 + 25,000 + 45,000 − 48,000 − 1,440 = ₹2,70,560.

Answer: Closing capital = ₹2,70,560.

Example 4: Readjusting fixed capitals during the year · 6 marks · Long answerHarder board level

Gita and Hari started a firm on 1st April 2025 with fixed capitals of ₹4,00,000 and ₹2,00,000, sharing profits 3:2. On 1st October 2025 they agreed that the total fixed capital should be ₹7,50,000 in the profit-sharing ratio, and each brought in the cash needed. Interest on capital is 8% p.a. For 2025-26, drawings were Gita ₹24,000 and Hari ₹18,000; shares of profit were Gita ₹54,000 and Hari ₹36,000. Prepare the partners' capital and current accounts. (6 marks)

Try it first, then show the solutionSolution
  1. New capitals: Gita 7,50,000 × 3/5 = ₹4,50,000 (brings ₹50,000); Hari 7,50,000 × 2/5 = ₹3,00,000 (brings ₹1,00,000).
  2. Capital accounts: Gita 4,00,000 + 50,000 = ₹4,50,000; Hari 2,00,000 + 1,00,000 = ₹3,00,000 (Cr balances c/d).
  3. Interest on capital: Gita 4,00,000 × 8% × 6/12 + 4,50,000 × 8% × 6/12 = 16,000 + 18,000 = ₹34,000; Hari 8,000 + 12,000 = ₹20,000.
  4. Current accounts: Gita 34,000 + 54,000 − 24,000 = ₹64,000 (Cr); Hari 20,000 + 36,000 − 18,000 = ₹38,000 (Cr).

Answer: Capitals ₹4,50,000 and ₹3,00,000; current accounts ₹64,000 (Cr) and ₹38,000 (Cr).

Example 5: Interest on current account balances · 3 marks · Short answerHOTS / competency

The deed of Asha and Ben allows interest at 6% p.a. on opening credit balances of current accounts and charges 6% p.a. on opening debit balances. On 1st April 2025 Asha's current account showed ₹20,000 (Cr) and Ben's ₹10,000 (Dr). Calculate the interest and pass the journal entries. (3 marks)

Try it first, then show the solutionSolution
  1. Asha: 20,000 × 6% = ₹1,200 allowed. Interest on Current A/c Dr 1,200; To Asha's Current A/c 1,200.
  2. Ben: 10,000 × 6% = ₹600 charged. Ben's Current A/c Dr 600; To Interest on Current A/c 600.
  3. Both interest accounts are closed to the P&L Appropriation A/c (debit for interest allowed, credit for interest charged).

Answer: Asha credited ₹1,200; Ben charged ₹600.

Example 6: Finding opening capital when interest depends on it · 6 marks · Long answerHOTS / competency

Pia's fluctuating capital on 31st March 2026 is ₹3,60,800. During the year she was allowed interest on capital at 10% on her opening capital, a salary of ₹30,000 and a profit share of ₹50,000. Her drawings were ₹48,000 and interest on drawings ₹1,200. Find her opening capital and the interest on capital. (6 marks)

Try it first, then show the solutionSolution
  1. Let opening capital = X. Then X + 0.10X + 30,000 + 50,000 − 48,000 − 1,200 = 3,60,800.
  2. 1.1X + 30,800 = 3,60,800, so 1.1X = 3,30,000 and X = ₹3,00,000.
  3. Interest on capital = 3,00,000 × 10% = ₹30,000.
  4. Check: 3,00,000 + 30,000 + 30,000 + 50,000 − 48,000 − 1,200 = ₹3,60,800.

Answer: Opening capital ₹3,00,000; interest on capital ₹30,000.

Where students lose marks in Fixed and Fluctuating Capital Accounts

The slips examiners see most often, and what to write instead.

  • Mistake: Posting appropriations to fixed capital accounts

    Treating fixed capitals like fluctuating ones.

    Wrong working

    Gita's Capital A/c: By Interest on Capital 34,000

    Right working

    Gita's Current A/c: By Interest on Capital 34,000

    Do this: ISC examiners in 2025 saw entries made through capital instead of current accounts under the fixed method.

    Usually costs: 2-3 marks across the accounts.

  • Mistake: Ignoring the date of a capital change

    Applying the full-year rate to the closing capital.

    Wrong working

    4,50,000 × 8% = 36,000

    Right working

    16,000 + 18,000 = 34,000

    Do this: Split the year at every date on which capital changes.

    Usually costs: 1-2 marks.

  • Mistake: Treating a debit current balance as a credit

    Adding an opening debit balance.

    Wrong working

    5,000 + 15,000 + 24,000 + 40,000 − 37,100 = 46,900

    Right working

    −5,000 + 79,000 − 37,100 = 36,900

    Do this: Write 'Dr' or 'Cr' beside every opening balance before you add.

    Usually costs: 1 mark.

  • Mistake: Combining capital introduced on different dates

    Saving time by posting one total.

    Wrong working

    By Bank 1,50,000 (Gita and Hari together, no date)

    Right working

    Separate dated entries for each partner

    Do this: Examiners in 2025 noted combined entries that ignored dates; post each one separately.

    Usually costs: 1 mark.

Exam tips

  • Use columnar capital and current accounts with dates in the first column.
  • State the balance side: 'Balance c/d' on the debit side means a credit balance.
  • A partner's debit current balance goes on the assets side of the Balance Sheet.
  • In a new firm, the first entry is capital introduced (Bank Dr, To Capital); examiners in 2025 noticed candidates missing it.

Practice questions on Fixed and Fluctuating Capital Accounts

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

  1. Q1 · 1 mark · MCQBoard level

    Under the fluctuating capital method, a partner's drawings are debited to:
    (a) Current A/c
    (b) Capital A/c
    (c) Drawings Suspense A/c
    (d) P&L Appropriation A/c

    Hint

    One account only.

    Answer

    (b) Capital A/c

  2. Q2 · 1 mark · MCQBoard level

    Under the fixed capital method, which account of a partner may show a debit balance?
    (a) Capital A/c
    (b) Loan A/c
    (c) Current A/c
    (d) None of these

    Hint

    Which one absorbs drawings?

    Answer

    (c) Current A/c

  3. Q3 · 3 marks · Short answerBoard level

    Opening current account ₹8,000 (Cr); interest on capital ₹12,000; commission ₹6,000; drawings ₹30,000; interest on drawings ₹750; share of profit ₹9,000. Find the closing balance. (3 marks)

    Hint

    Credits minus debits.

    Answer

    8,000 + 12,000 + 6,000 + 9,000 − 30,000 − 750 = ₹4,250 (Cr).

  4. Q4 · 3 marks · Short answerHarder board level

    Opening current account ₹6,000 (Dr); interest on capital ₹10,000; share of profit ₹14,000; drawings ₹32,000; interest on drawings ₹800. Find the closing balance and state where it appears in the Balance Sheet. (3 marks)

    Hint

    Start from −6,000.

    Answer

    −6,000 + 10,000 + 14,000 − 32,000 − 800 = −₹14,800, a debit balance shown on the assets side.

  5. Q5 · 3 marks · Short answerHarder board level

    Pass journal entries under (i) fixed and (ii) fluctuating capitals for interest on capital of ₹15,000 allowed to Kiran. (3 marks)

    Hint

    Only the credit account differs.

    Answer

    (i) Interest on Capital A/c Dr 15,000; To Kiran's Current A/c 15,000. (ii) Interest on Capital A/c Dr 15,000; To Kiran's Capital A/c 15,000. In both cases Interest on Capital A/c is closed to the P&L Appropriation A/c.

  6. Q6 · 6 marks · Long answerHarder board level

    Avi and Bela share profits equally, capitals fluctuating: Avi ₹3,00,000, Bela ₹2,00,000 on 1st April 2025. Bela introduced ₹50,000 on 1st January 2026. Interest on capital 10% p.a.; salary to Avi ₹20,000; drawings Avi ₹40,000, Bela ₹25,000; interest on drawings Avi ₹1,000, Bela ₹600. Net profit ₹1,20,000. Prepare the capital accounts. (6 marks)

    Hint

    Bela's extra capital earns interest for 3 months.

    Answer

    Interest on capital: Avi 30,000; Bela 20,000 + 1,250 = 21,250. Divisible = 1,20,000 + 1,600 − 51,250 − 20,000 = 50,350; ₹25,175 each. Closing: Avi 3,00,000 + 30,000 + 20,000 + 25,175 − 40,000 − 1,000 = ₹3,34,175; Bela 2,00,000 + 50,000 + 21,250 + 25,175 − 25,000 − 600 = ₹2,70,825.

  7. Q7 · 1 mark · Assertion-reasonHarder board level

    Assertion (A): Under the fixed capital method, interest on capital is credited to the partner's current account.
    Reason (R): The capital account balance changes only when capital is introduced or permanently withdrawn.
    (a) Both A and R are true, and R is the correct explanation of A.
    (b) Both A and R are true, but R is not the correct explanation of A.
    (c) A is true, but R is false.
    (d) A is false, but R is true.

    Hint

    Why is there a current account at all?

    Answer

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

  8. Q8 · 3 marks · Short answerHarder board level

    Joel's fixed capital was ₹5,00,000 on 1st April 2025. On 1st October 2025 he permanently withdrew ₹1,00,000 of capital. Interest on capital is 8% p.a. Calculate the interest for 2025-26 and pass the entry for the withdrawal. (3 marks)

    Hint

    Two periods of 6 months.

    Answer

    5,00,000 × 8% × 6/12 + 4,00,000 × 8% × 6/12 = 20,000 + 16,000 = ₹36,000. Entry: Joel's Capital A/c Dr 1,00,000; To Bank A/c 1,00,000 (capital account, as it is permanent).

  9. Q9 · 6 marks · Long answerHOTS / competency

    Ravi and Leela (equal partners) had fixed capitals of ₹4,00,000 and ₹2,50,000 on 1st April 2025. On 1st January 2026 they agreed a total capital of ₹6,00,000 in their profit-sharing ratio; the surplus was withdrawn and the shortfall brought in. Calculate the cash adjustments and interest on capital at 10% p.a. for 2025-26. (6 marks)

    Hint

    New capital ₹3,00,000 each from 1st January.

    Answer

    Ravi withdraws ₹1,00,000; Leela brings ₹50,000. Interest: Ravi 4,00,000 × 10% × 9/12 + 3,00,000 × 10% × 3/12 = 30,000 + 7,500 = ₹37,500; Leela 18,750 + 7,500 = ₹26,250.

  10. Q10 · 3 marks · Short answerHOTS / competency

    Two partners with equal fluctuating capitals of ₹2,00,000 each share profits equally. One partner regularly draws far more than his profit share. Explain why the fixed capital method would show this more clearly, and what the other partner can check each year. (3 marks)

    Hint

    Where would the excess drawing appear?

    Answer

    Under fluctuating capitals the excess drawing silently reduces his capital, so the agreed capital is eroded without notice. Under fixed capitals his capital stays at ₹2,00,000 and the excess shows as a debit balance in his current account, which the other partner can see and ask to be cleared; it also keeps interest on capital based on the agreed figure.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

  1. 1.How many accounts per partner under the fixed capital method?Show answer

    Two: capital and current.

  2. 2.Which method applies if the question is silent?Show answer

    Fluctuating capitals.

  3. 3.Capital ₹3,00,000 for 4 months and ₹3,60,000 for 8 months at 10%: interest?Show answer

    10,000 + 24,000 = ₹34,000.

  4. 4.Is a permanent withdrawal posted to the current account?Show answer

    No, to the capital account.

  5. 5.Where does a debit current account balance appear?Show answer

    On the assets side of the Balance Sheet.

Fixed and Fluctuating Capital Accounts: frequently asked questions

Can a fixed capital account ever change?

Yes, but only when a partner introduces more capital or permanently withdraws capital by agreement. Profits, drawings and interest never touch it.

Why is the fixed capital method popular?

It keeps the agreed capital stable for interest calculations and shows each partner's running position with the firm separately in the current account.

Is interest on a current account balance a charge or an appropriation?

Treat it like interest on capital and drawings, through the P&L Appropriation Account, unless the deed says it is a charge.

What if total capital is to be held in the profit-sharing ratio?

Multiply the agreed total by each partner's share; the difference from the existing capital is brought in or withdrawn in cash.