Identify the correct sequence for finding out divisible Profit & Loss…

Identify the correct sequence for finding out divisible Profit & Loss for a Partnership Firm manufacturing Steel pipes:

(A) Transfer amount to general reserve, as per requirement.
(B) Allow interest on capital and charge interest on drawing.
(C) Transfer of the balance of profit and loss account to profit and loss appropriation A/c
(D) Find out the balance amount to be distributed among partners.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (C), (B), (A), (D)

The Profit and Loss Appropriation Account shows how the net profit is used, so it has to begin with that profit and end with what is left for the partners.

(C) Transfer of the balance of profit and loss account to profit and loss appropriation A/c — the appropriation account starts with the net profit as per the Profit and Loss Account.

(B) Allow interest on capital and charge interest on drawing. — the adjustments the deed provides for are made next; interest on capital is debited and interest on drawings credited.

(A) Transfer amount to general reserve, as per requirement. — any amount the partners agree to keep back in the business is set aside out of the profit left after the adjustments.

(D) Find out the balance amount to be distributed among partners. — what remains is the divisible profit, shared in the profit sharing ratio; it is always the last step.

NCERT (2026-27 edition):
Profit and Loss Appropriation Account – “Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. It shows how the profits are appropriated or distributed among the partners. All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. It starts with the net profit/net loss as per Profit and Loss Account.”

NCERT (2026-27 edition):
Profit and Loss Appropriation Account

Extract from the NCERT textbook

NCERT (2026-27 edition):
Terms Introduced in the Chapter – “… 5. Distribution of profit and loss: The distribution of profits among the partners is shown through a Profit and Loss Appropriation Account, which is merely an extension of the Profit and Loss Account. It is usually debited with interest on capital and salary/commission allowed to the partners, and credited with net profit as per Profit and Loss Account and the interest on drawings. The balance being profit or loss is distributed among the partners in the profit sharing ratio and transferred to their respective capital accounts.”