IGCSE Accounting Paper-2: Specimen Questions with Answers 38 - 39 of 189

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Passage

King and Queen commenced business as partners on April 1st 2006. King contributed £ 80000 and Queen contributed £ 50000 as capital. Their profit sharing ratio was decided as 2: 1. During the year King withdrew £ 8000 and Queen withdrew £ 16000. King was also entitled for salary amounting to £ 12000. Interest on capital was paid@6 % . The profit of the firm after providing for salary and interest on capital was £ 24000.

Question 38 (3 of 5 Based on Passage)

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Describe the maintenance of fluctuating capital accounts?

Explanation

Under the fluctuating capital method, only one account called as the capital account of the partner is maintained. All adjustments such as drawings, interest on drawings, additional capital introduced, interest on capital, Salary withdrawn, commission received, Share in the profit or loss of the firm are considered. Due to these adjustments the partner՚s capital keeps fluctuating, and hence it gets the name of fluctuating capital account.

Question 39 (4 of 5 Based on Passage)

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Describe the maintenance of fixed capital accounts?

Explanation

Under the fixed capital method, two accounts for each partner are maintained. One is called as the capital account of the partner, which remains fixed throughout the period.

‎Only additional capital brought in by the partner will find place in this account All other adjustments such as drawings, interest on drawings, interest on capital, Salary withdrawn, commission received, Share in the profit or loss of the firm are considered in the second account called as the “Current account” of the partner. As the partner՚s capital tends to remain fixed, it gets the name of fixed capital.

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