Profit and Loss Appropriation Account has the following features:
(A) It is merely an extension of the Profit and Loss Account of the firm.
(B) It shows how the profits are appropriated or distributed among the partners.
(C) It starts always with the net profit as per Profit and Loss Account.
(D) All adjustments in respect of partner's salary, partner's commission, interest on capital, interest on drawings, etc. are made through this account.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
The Profit and Loss Appropriation Account carries on where the Profit and Loss Account ends and shows how the result of the year is shared out among the partners.
(A) It is merely an extension of the Profit and Loss Account of the firm. Correct. It continues the Profit and Loss Account and records only what is appropriated out of the profit.
(B) It shows how the profits are appropriated or distributed among the partners. Correct. This is the purpose of the account: every appropriation and each partner’s share of the balance appear in it.
(C) It starts always with the net profit as per Profit and Loss Account. Incorrect. It starts with the net profit or the net loss, whichever the Profit and Loss Account shows. A loss is brought in on the debit side, so “always with the net profit” is too strong.
(D) All adjustments in respect of partner’s salary, partner’s commission, interest on capital, interest on drawings, etc. are made through this account. Correct. These items are appropriations of profit, not expenses, so they go through this account and not through the Profit and Loss Account.
NCERT (2026-27 edition): |