Arrange the following steps in correct sequence. (A) Appropriation of…

Arrange the following steps in correct sequence.

(A) Appropriation of profit like Interest on capital
(B) Charge against profit
(C) Distribution of profits among the partners
(D) Transfer to General Reserve as a part of Divisible profits
(E) Calculation of Net profit

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (B), (E), (A), (D), (C)

A charge against profit must be met whether or not there is a profit, so it comes before the net profit is known; appropriations are made only out of that net profit, through the Profit and Loss Appropriation Account.

(B) Charge against profit — first: items such as interest on a partner’s loan are debited to the Profit and Loss Account.

(E) Calculation of Net profit — second: the Profit and Loss Account is balanced after all charges.

(A) Appropriation of profit like Interest on capital — third: the net profit is carried to the Appropriation Account, which allows interest on capital, salary and commission.

(D) Transfer to General Reserve as a part of Divisible profits — fourth: a transfer to reserve is also an appropriation of the profit.

(C) Distribution of profits among the partners — last: the balance is shared in the profit sharing ratio.

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.”