Definition and Purpose of Fixed Capital
Fixed capital refers to the initial agreed-upon capital contribution by each partner that typically remains constant unless specifically changed by mutual consent.

• Recorded in a separate capital account
  
• Not affected by regular business transactions like drawings or profit allocation
  
• Changes only when partners agree to introduce or withdraw capital
  
• Reflects long-term financial commitment to the firm
  
• Useful for stability and easy financial analysis
  

Definition and Use of Fluctuating Capital
Fluctuating capital reflects all changes that occur periodically in the partner’s account due to operational financial movements.

• Includes adjustments for salary, commission, interest, profits, and losses
  
• Also tracks drawings and other periodic transactions
  
• Shows the real-time financial position of each partner
  
• Calculated in a current account when fixed capital is maintained
  
• Balances fluctuate regularly as business progresses
  

Firms Use Both Types
Using both capital types helps maintain clarity and control over long-term vs. operational contributions and benefits.

• Fixed capital represents permanent ownership stakes
  
• Fluctuating/current accounts reflect ongoing business entitlements
  
• Easier to track partner dues and withdrawals separately
  
• Reduces confusion in financial reporting and taxation
  
• Helps resolve disputes over capital balances vs. income
  

Accounting and Operational Impact
Maintaining separate accounts improves financial management and transparency, especially in firms with complex partner arrangements.

• Two separate ledgers are maintained for each partner
  
• Fixed capital shows in the balance sheet as a stable figure
  
• Current/fluctuating account shows net payable or receivable position
  
• Helps in interest calculations (on capital and drawings)
  
• Useful during the retirement, admission, or dissolution of a partner
  

Legal and Deed Considerations
The structure of capital must be clearly mentioned in the partnership deed to avoid misunderstandings and ensure consistency.

• Specify the initial fixed capital for each partner
  
• Define rules for drawing limits, interest rates, and profit allocation
  
• Clarify the treatment of additional capital or withdrawal scenarios
  
• Mention whether capital can be adjusted against losses
  
• The deed should outline the accounting policy to be followed