Identify the true statement in respect of a partnership Firm-

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Rent paid to partner and Interest on loan from the partner, both are charges for the firm.

A charge against profit is an expense the firm must meet whether it earns a profit or not, and it is debited to the Profit and Loss Account. An appropriation is a sharing of the profit already earned, shown in the Profit and Loss Appropriation Account (partner's salary, commission, interest on capital, interest on drawings).

Rent for a partner's building used by the firm is paid to him as a landlord, and interest on his loan is paid to him as a lender. Both are dealings in which he acts like an outsider, so both are charges, payable even in a year of loss.

Option (1) Rent paid to a partner is a charge and interest on loan from the partner is an appropriation for the firm. — Incorrect. Interest on a partner's loan is a charge, not an appropriation.

Option (3) Rent paid to a partner is an appropriation and interest on loan from the partner is a charge for the firm. — Incorrect. Rent to a partner is a charge, not an appropriation.

Option (4) Rent paid to partner and Interest on loan from the partner, both are appropriation for the firm. — Incorrect. Neither is an appropriation; both are paid irrespective of profit.

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.”