Find the right sequence of appropriation of profitsA. Profits transfe…

Find the right sequence of appropriation of profits

A. Profits transferred to P and L appropriation A/c.

B. Interest on capital

C. Profits distributed to partner after appropriation

D. Interest on partner loan A/c

Choose the correct answer from the options given below

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → D, A, B, C

Interest on a partner's loan is a charge against profit, not an appropriation, so it is met before the profit reaches the appropriation account. The appropriations then follow, and whatever remains is divided.

D. Interest on partner loan A/c — first. It is debited to the Profit and Loss Account, like interest on any loan.
A. Profits transferred to P and L appropriation A/c. — second. The net profit after that charge is carried to the Profit and Loss Appropriation Account.
B. Interest on capital — third. It is an appropriation of profit, debited to the Profit and Loss Appropriation Account.
C. Profits distributed to partner after appropriation — last. The balance left after the appropriations is divided among the partners in their 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.”

NCERT (2026-27 edition):
Provisions of Partnership Act Relevant for Accounting – “… (d) Interest on Loan: If any partner has advanced loan to the firm for the purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of 6 per cent per annum.”