The profit which is distributed between partners is calculated by preparing...........................account.
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Profit and loss Appropriation.
The profit which is distributed between partners is calculated by preparing Profit and loss Appropriation A/c .
In a sole proprietorship, the profit or loss calculated in the profit and loss account is transferred to the proprietor's capital account. However, in a partnership, additional adjustments need to be made, such as interest on drawings, interest on capital, partner salaries, and partner commissions. To facilitate these adjustments, it is customary to prepare a Profit and Loss Appropriation Account for the firm. This account helps determine the final amount of profit or loss to be distributed among the partners based on their agreed profit-sharing ratio.