A, B & C are partners sharing profits in the ratio of 3:2:1. C died on 1st July, 2023. On this date, final accounts were prepared to ascertain profits for the period. It resulted in a profit of ₹1,75,000 to the firm after all adjustments. To give effect to the above:

Profit and loss Appropriation A/c will be debited

The correct answer is option 2- Profit and loss Appropriation A/c will be debited.

The final accounts are being prepared to ascertain profits for the period, profit and loss account is prepared to know the net profit which is transferred to profit and loss appropriation account to adjust items like salary, commission, interest on capital etc. The remaining profit after all adjustments is transferred to partners capital account.

When the net profit is transferred to profit and loss appropriation account and after giving partners their related salary, commission etc, the remaining profit is divisible profit which will be distributed between partners. The journal entry passed for that-
Profit & loss Appropriation A/c Dr.  
    To Partners Capital A/c

So, profit and loss Appropriation account is debited.