AccountancyCBSE Class 12 · Accounting for Partnership: Basic Concepts

Profit and Loss Appropriation Account: Class 12 Format, Rules and Solved Questions

Updated 15 October 2026 · Fact-checked

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account that shows how a firm's net profit is divided among partners. It is credited with net profit and interest on drawings, and debited with interest on capital, partners' salary and commission, reserves, and finally each partner's share of the divisible profit.

Net profit comes in on the credit side; appropriations go on the debit side and the leftover divisible profit flows to the partners' accounts.

Illustration drawn for QuestionBuddy.

Understand Profit and Loss Appropriation Account

Why a second account? The Profit and Loss Account finds the firm's net profit after all charges (expenses, rent to a partner, interest on a partner's loan, manager's commission). The Profit and Loss Appropriation Account then shows how that profit is appropriated, that is, distributed among the owners. Items in it are not expenses of the business; they are the partners' rewards under the deed.

Format (vertical sides, T-form).

Debit side: Interest on Capital, Partners' Salary, Partners' Commission, transfer to Reserve, and the balance (divisible profit) to partners' Capital or Current Accounts in the profit sharing ratio.
Credit side: Net Profit (transferred from the Profit and Loss Account) and Interest on Drawings.
If capitals are fixed, every appropriation goes to Current Accounts; if fluctuating, to Capital Accounts.

Charge or appropriation? The syllabus rule. CBSE's 2026-27 syllabus says interest on a partner's loan is a charge against profits. So it goes to the Profit and Loss Account and is allowed even in a loss year. Interest on capital, salary and commission to partners are appropriations: they come out of profit only.

Interest on capital when profit falls short. When the deed treats interest on capital as an appropriation and the profit (before interest on capital) is less than the interest due, the whole profit is shared in the ratio of the interest due, not in the profit sharing ratio. If there is a loss, no interest on capital is allowed at all. (If the deed says interest is a charge, it is allowed in full even if this creates or increases a loss.)

Commission on profit. Read the wording: commission on net profit before charging such commission = Profit × rate/100; after charging such commission = Profit × rate/(100 + rate).

Guarantee of profit. A partner (often a new one) may be guaranteed a minimum share of profit. Divide profit normally first; if the guaranteed partner's share is short, the deficiency is borne by the guaranteeing partner(s) in the agreed ratio (or in their own profit sharing ratio if nothing is said). Show it inside the appropriation account, against each partner's share, so the totals stay the same.

Profit and Loss Appropriation Account: key facts

Divisible profit: Net profit + interest on drawings − interest on capital − salaries − commission to partners − transfer to reserve; Shared in the profit sharing ratio.
Insufficient profit for interest on capital: Each partner gets: profit available × his interest due / total interest due; Only when the deed treats interest on capital as an appropriation; nil interest in a loss year.
Commission before charging it: Commission = Profit × rate / 100
Commission after charging it: Commission = Profit × rate / (100 + rate); For 10%: Profit × 10/110.
Deficiency on a guarantee: Deficiency = guaranteed amount − actual share; borne by the guarantor(s) in the agreed ratio; Totals of the shares do not change.
Interest on capital with a change in capital: Opening capital × rate + additional capital × rate × months remaining / 12 − withdrawal × rate × months remaining / 12

How to answer Profit and Loss Appropriation Account questions

Most 4- and 6-mark questions mix several adjustments. Work in the same order every time and the account will balance on the first attempt.

1Strip out charges first: interest on a partner's loan, rent to a partner and manager's commission go to the Profit and Loss Account, not here.
2Write the credit side: net profit (after charges) and interest on drawings.
3Check sufficiency: if profit is less than the interest on capital due, share it in the ratio of interest due and stop.
4Debit interest on capital, then salary (monthly × 12), then commission (check 'before' or 'after charging').
5Find the divisible profit and share it in the profit sharing ratio.
6Apply any guarantee last: show each partner's share, less the deficiency borne, so the total stays equal.
7Total both sides; they must be equal. Post the items to Current Accounts if capitals are fixed.

Profit and Loss Appropriation Account in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Guarantee of profit

Suppose Ana, Bela and Tara run a coaching centre and share profits 2 : 2 : 1. Tara left a salaried job to join, so Ana promised her at least ₹24,000 a year as her share of profit, any shortfall to come out of Ana's share. This year the centre's profit is ₹90,000.

How much does each partner finally get, and why does Bela's share not change?

Try it first, then show the solutionSolution

Normal shares: Ana 36,000, Bela 36,000, Tara 18,000 (90,000 in 2 : 2 : 1).
Tara is short by 24,000 − 18,000 = ₹6,000.
Only Ana gave the guarantee, so only Ana bears ₹6,000: Ana 30,000.
Check: 30,000 + 36,000 + 24,000 = ₹90,000.

Answer: Ana ₹30,000, Bela ₹36,000 and Tara ₹24,000. Bela did not give the guarantee, so her share stays at ₹36,000; the whole deficiency of ₹6,000 comes out of Ana's share, and the total profit distributed is still ₹90,000.

Memory hook: A guarantee moves profit between partners; it never changes the total.

Tricks to remember Profit and Loss Appropriation Account

Short memory aids. Say each one aloud once, then use it on a question the same day.

Credit side is 'NI'
Net profit and Interest on drawings: the only two credits.
Use it when: Writing the format quickly.
Loan Loves the P&L
Interest on a partner's Loan goes to the Profit and Loss Account (a charge); interest on Capital goes to the appropriation account.
Use it when: Charge versus appropriation MCQs.
After charging = 100 + rate
If the commission sits inside the profit figure, divide by (100 + rate).
Use it when: Commission after charging such commission.

Profit and Loss Appropriation Account: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Interest on capital, insufficient profit · 1 mark · MCQBoard level

A and B have capitals of ₹3,00,000 and ₹2,00,000. The deed allows interest on capital at 10% p.a. The firm's profit for the year, before interest on capital, is ₹40,000. The interest on capital credited to A and B will be:
(a) ₹30,000 and ₹20,000
(b) ₹24,000 and ₹16,000
(c) ₹20,000 and ₹20,000
(d) nil

Try it first, then show the solutionSolution

Interest due: ₹30,000 and ₹20,000, total ₹50,000, more than the profit of ₹40,000.
Share ₹40,000 in the ratio of interest due, 3 : 2: ₹24,000 and ₹16,000.

Answer: (b) ₹24,000 and ₹16,000

Example 2: Appropriation account with salary and commission · 3 marks · Short answerBoard level

Kavya and Rohan are partners in Saffron Studio sharing profits 3 : 2, with capitals of ₹4,00,000 and ₹2,00,000. The deed provides: interest on capital at 8% p.a.; Rohan's salary ₹3,000 per month; Kavya's commission 5% of net profit before any appropriation. Interest on drawings: Kavya ₹2,000, Rohan ₹1,500. Net profit for the year ended 31st March 2026 is ₹2,10,000. Prepare the Profit and Loss Appropriation Account. (3 marks)

Try it first, then show the solutionSolution

Credit side: net profit ₹2,10,000 + interest on drawings ₹3,500 = ₹2,13,500.
Interest on capital: Kavya ₹32,000, Rohan ₹16,000; salary to Rohan ₹36,000; commission to Kavya 5% × 2,10,000 = ₹10,500.
Divisible profit = 2,13,500 − 48,000 − 36,000 − 10,500 = ₹1,19,000; Kavya 3/5 = ₹71,400, Rohan 2/5 = ₹47,600.
Debit total = 48,000 + 36,000 + 10,500 + 1,19,000 = ₹2,13,500 = credit total.

Answer: Dr side: Interest on Capital (Kavya 32,000; Rohan 16,000), Rohan's Salary 36,000, Kavya's Commission 10,500, Profit transferred to Kavya's Capital 71,400 and Rohan's Capital 47,600; total ₹2,13,500. Cr side: Net Profit 2,10,000, Interest on Drawings (Kavya 2,000; Rohan 1,500); total ₹2,13,500.

Example 3: Commission after charging such commission · 3 marks · Short answerHarder board level

The net profit of a firm before charging a working partner's commission is ₹1,32,000. The partner is entitled to a commission of 10% of the net profit after charging such commission. Calculate the commission and the profit left for distribution. (3 marks)

Try it first, then show the solutionSolution

After charging means the commission is 10% of what remains after it: Commission = 1,32,000 × 10/110.
Commission = ₹12,000.
Check: profit after commission = 1,32,000 − 12,000 = ₹1,20,000, and 10% of 1,20,000 = ₹12,000.

Answer: Commission = ₹12,000; profit left for distribution = ₹1,20,000.

Example 4: Guarantee borne by two partners · 4 marks · Short answerHarder board level

A, B and C share profits 3 : 2 : 1. C is guaranteed a minimum profit of ₹50,000; any deficiency is to be borne by A and B in the ratio 3 : 2. The firm's profit is ₹2,40,000. Show the distribution of profit. (4 marks)

Try it first, then show the solutionSolution

Normal shares: A ₹1,20,000, B ₹80,000, C ₹40,000.
Deficiency of C = 50,000 − 40,000 = ₹10,000.
A bears 3/5 = ₹6,000; B bears 2/5 = ₹4,000.
Final: A 1,14,000; B 76,000; C 50,000; total ₹2,40,000.

Answer: A ₹1,14,000 (1,20,000 − 6,000), B ₹76,000 (80,000 − 4,000), C ₹50,000 (40,000 + 10,000). Total ₹2,40,000.

Example 5: Loan interest, interest on capital and a one-partner guarantee · 6 marks · Long answerHOTS / competency

Isha, Jai and Kiran are partners in Bluebird Bakers sharing profits 2 : 2 : 1, with capitals of ₹5,00,000, ₹3,00,000 and ₹2,00,000. Jai has also lent ₹1,00,000 to the firm; no rate of interest is agreed. The deed allows interest on capital at 6% p.a. and guarantees Kiran a minimum share of profit of ₹40,000, any deficiency to be borne by Isha alone. Interest on drawings: Isha ₹3,000, Jai ₹2,000, Kiran ₹1,000. Profit before interest on Jai's loan is ₹2,06,000. Prepare the Profit and Loss Appropriation Account. (6 marks)

Try it first, then show the solutionSolution

Loan interest is a charge at 6% p.a. (no agreement): ₹6,000 to the Profit and Loss Account; net profit = 2,06,000 − 6,000 = ₹2,00,000.
Credit side: net profit 2,00,000 + interest on drawings 6,000 = ₹2,06,000.
Interest on capital at 6%: Isha 30,000, Jai 18,000, Kiran 12,000 = ₹60,000; divisible profit = ₹1,46,000.
Shares 2 : 2 : 1: Isha 58,400, Jai 58,400, Kiran 29,200.
Kiran's deficiency = 40,000 − 29,200 = ₹10,800, borne by Isha: Isha 47,600.
Debit total = 60,000 + 47,600 + 58,400 + 40,000 = ₹2,06,000 = credit total.

Answer: Dr: Interest on Capital (Isha 30,000; Jai 18,000; Kiran 12,000); Profit to Capitals: Isha 58,400 less 10,800 = 47,600, Jai 58,400, Kiran 29,200 add 10,800 = 40,000; total ₹2,06,000. Cr: Profit and Loss A/c (net profit) 2,00,000; Interest on Drawings 6,000; total ₹2,06,000. Interest on Jai's loan (₹6,000) is not in this account; it was charged in the Profit and Loss Account.

Example 6: Loss year: what is still allowed? · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): In a year in which the firm suffers a loss, interest on a partner's loan is still credited to the partner, though no interest on capital is allowed.
Reason (R): Interest on a partner's loan is a charge against profits, while interest on capital (when the deed calls it an appropriation) can be paid only out of profits.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Loan interest is a charge, so it is debited to the Profit and Loss Account whatever the result.
Interest on capital as an appropriation needs profit; in a loss year it is nil. R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Profit and Loss Appropriation Account

The slips examiners see most often, and what to write instead.

Mistake: Debiting interest on a partner's loan to the appropriation account
It looks like interest on capital.
Wrong working
P&L Appropriation A/c Dr 6,000 To Jai's Loan A/c 6,000
Right working
Profit and Loss A/c Dr 6,000 To Jai's Loan A/c 6,000
Do this: Loan interest is a charge under the 2026-27 syllabus.
Usually costs: 1 mark, and the divisible profit goes wrong too.
Mistake: Sharing insufficient profit in the profit sharing ratio
Habit of using the profit sharing ratio for everything.
Wrong working
Profit ₹40,000 shared 1 : 1 as interest on capital.
Right working
Share ₹40,000 in the ratio of interest due, 30,000 : 20,000 = 3 : 2.
Do this: Compare profit with total interest due before you start.
Usually costs: 1-2 marks.
Mistake: Using 10% instead of 10/110 for commission after charging
Not reading 'after charging such commission'.
Wrong working
Commission = 10% × 1,32,000 = 13,200
Right working
Commission = 1,32,000 × 10/110 = 12,000
Do this: Underline 'before' or 'after' in the question.
Usually costs: 1 mark.
Mistake: Charging the guarantee deficiency to all partners
Ignoring who gave the guarantee.
Wrong working
Deficiency 10,800 borne by Isha and Jai equally.
Right working
Borne by Isha alone, as the deed says.
Do this: Write 'borne by ___ in ___ ratio' before calculating.
Usually costs: 1-2 marks.
Mistake: Crediting interest on drawings to the partner
Mixing up the direction of the entry.
Wrong working
Interest on drawings shown on the debit side.
Right working
Interest on drawings is a gain to the firm: credit side of the appropriation account; debit the partner's account.
Do this: Drawings cost the partner, so his account is debited.
Usually costs: 1 mark.

Exam tips

Write the heading in full: 'Profit and Loss Appropriation Account for the year ended 31st March 2026'.
Show each partner's amount separately inside a bracket on the same line; examiners give the mark only for the split.
When a guarantee is involved, show 'Less: Deficiency borne' and 'Add: Deficiency received' lines so the logic is visible.
Accountancy in 2026-27 has 1-, 3-, 4- and 6-mark questions; a full appropriation account is a 4- or 6-mark item.

Practice questions on Profit and Loss Appropriation Account

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Which of the following is credited to the Profit and Loss Appropriation Account?
(a) Interest on capital
(b) Salary to a partner
(c) Interest on drawings
(d) Interest on a partner's loan
Hint
Which item is a gain to the firm?
Answer
(c) Interest on drawings
Q2 · 1 mark · MCQBoard level
Net profit before charging a partner's commission is ₹2,20,000. The partner is entitled to 10% of the net profit after charging such commission. His commission is:
(a) ₹22,000
(b) ₹20,000
(c) ₹24,200
(d) ₹19,800
Hint
Use 10/110.
Answer
(b) ₹20,000
Q3 · 3 marks · Short answerBoard level
Give three differences between the Profit and Loss Account and the Profit and Loss Appropriation Account. (3 marks)
Hint
Purpose, items, when prepared.
Answer
(1) Purpose: the Profit and Loss Account finds net profit; the appropriation account shows how it is distributed. (2) Items: the Profit and Loss Account has charges such as expenses, rent to a partner and interest on a partner's loan; the appropriation account has interest on capital and drawings, partners' salary and commission, reserves and shares of profit. (3) Sequence: the appropriation account is prepared after the Profit and Loss Account and starts with its net profit.
Q4 · 3 marks · Short answerHarder board level
X and Y have capitals of ₹6,00,000 and ₹4,00,000. Interest on capital is allowed at 10% p.a. as an appropriation. The firm earned a profit of ₹75,000 before interest on capital. Calculate the interest on capital to be credited to each partner. (3 marks)
Hint
Compare ₹75,000 with total interest due.
Answer
Interest due: X ₹60,000, Y ₹40,000, total ₹1,00,000, more than ₹75,000. Share ₹75,000 in 60,000 : 40,000 = 3 : 2: X ₹45,000, Y ₹30,000. No profit remains for distribution.
Q5 · 4 marks · Short answerHarder board level
X, Y and Z share profits 5 : 3 : 2. Z is guaranteed a minimum profit of ₹60,000, any deficiency to be borne by X and Y in the ratio 3 : 2. The firm's profit is ₹2,50,000. Show the distribution. (4 marks)
Hint
Z's normal share is 2/10.
Answer
Normal shares: X 1,25,000, Y 75,000, Z 50,000. Deficiency 10,000: X bears 6,000, Y bears 4,000. Final: X ₹1,19,000, Y ₹71,000, Z ₹60,000; total ₹2,50,000.
Q6 · 3 marks · Short answerHarder board level
Meera's capital on 1st April 2025 was ₹2,40,000. She introduced additional capital of ₹60,000 on 1st January 2026. Interest on capital is allowed at 10% p.a. Calculate her interest on capital for the year ended 31st March 2026. (3 marks)
Hint
The additional capital earns interest for 3 months.
Answer
On ₹2,40,000 for 12 months: ₹24,000. On ₹60,000 for 3 months: 60,000 × 10% × 3/12 = ₹1,500. Total ₹25,500.
Q7 · 4 marks · Short answerHarder board level
A firm's net profit before the manager's commission is ₹2,31,000. The manager gets 10% of the net profit after charging his commission. A partner, Lata, then gets a commission of 5% of the remaining profit after charging her own commission. Calculate both commissions and the profit left for distribution. (4 marks)
Hint
The manager's commission is a charge; Lata's is an appropriation.
Answer
Manager: 2,31,000 × 10/110 = ₹21,000 (charged to the Profit and Loss Account); net profit = ₹2,10,000. Lata: 2,10,000 × 5/105 = ₹10,000 (appropriation). Profit left for distribution = ₹2,00,000.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Interest on capital is always debited to the Profit and Loss Appropriation Account, even when the firm suffers a loss.
Reason (R): Interest on capital is an appropriation of profit when the deed does not say it is a charge.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Can an appropriation be made out of a loss?
Answer
(d) A is false, but R is true. As an appropriation, interest on capital is not allowed in a loss year.
Q9 · 6 marks · Long answerHOTS / competency
Mehr, Neil and Ojas are partners in Tealeaf Traders sharing profits 3 : 2 : 1, with capitals of ₹3,00,000, ₹2,00,000 and ₹1,00,000. The deed provides: interest on capital at 10% p.a.; Neil's salary ₹2,000 per month; Ojas's commission 10% of net profit before any appropriation; Ojas is guaranteed a minimum share of profit of ₹25,000, any deficiency to be borne by Mehr and Neil in the ratio 3 : 2. Interest on drawings: Mehr ₹1,800, Neil ₹1,200. Net profit is ₹1,50,000. Prepare the Profit and Loss Appropriation Account. (6 marks)
Hint
Divisible profit is ₹54,000 before the guarantee.
Answer
Cr: Net profit 1,50,000 + interest on drawings 3,000 = ₹1,53,000. Dr: interest on capital 30,000 + 20,000 + 10,000 = 60,000; Neil's salary 24,000; Ojas's commission 15,000; divisible profit ₹54,000. Shares: Mehr 27,000, Neil 18,000, Ojas 9,000. Ojas's deficiency 16,000: Mehr bears 9,600, Neil 6,400. Final: Mehr ₹17,400, Neil ₹11,600, Ojas ₹25,000. Both sides total ₹1,53,000.
Q10 · 4 marks · Short answerHOTS / competency
P, Q and R share profits 2 : 2 : 1. R is guaranteed a minimum profit of ₹30,000 and any deficiency is borne by P alone. After the guarantee, P received ₹51,000. Find the firm's total profit and the amounts received by Q and R. (4 marks)
Hint
Let profit be x: P gets 2x/5 − (30,000 − x/5).
Answer
P = 2x/5 − (30,000 − x/5) = 3x/5 − 30,000 = 51,000, so x = ₹1,35,000. Normal shares: P 54,000, Q 54,000, R 27,000; deficiency 3,000 borne by P. Q gets ₹54,000, R gets ₹30,000 (total 51,000 + 54,000 + 30,000 = 1,35,000).

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Name the two items on the credit side of the Profit and Loss Appropriation Account.Show answer
Net profit (from the Profit and Loss Account) and interest on drawings.
2.Where is interest on a partner's loan recorded under the 2026-27 syllabus?Show answer
In the Profit and Loss Account, as a charge against profits.
3.What fraction gives a 10% commission after charging such commission?Show answer
10/110 of the profit before the commission.
4.Profit is ₹40,000 and interest on capital due is ₹30,000 and ₹20,000. How is the profit shared?Show answer
In the ratio of interest due, 3 : 2: ₹24,000 and ₹16,000.
5.Does a guarantee of profit change the total profit distributed?Show answer
No. It only moves the deficiency from the guarantor's share to the guaranteed partner.

Profit and Loss Appropriation Account: frequently asked questions

What is a Profit and Loss Appropriation Account in Class 12?

It is an extension of the Profit and Loss Account of a partnership firm that shows how the net profit is distributed: interest on capital, partners' salary and commission, reserves and each partner's share of the remaining profit.

Is interest on capital a charge or an appropriation?

An appropriation, unless the deed says it is a charge. As an appropriation it is limited to the available profit and is not allowed in a loss year.

How is a guarantee of profit shown?

Share the profit normally, then reduce the guarantor's share by the deficiency and add it to the guaranteed partner's share, inside the appropriation account.

Do I credit appropriations to capital or current accounts?

To current accounts if capitals are fixed, and to capital accounts if capitals are fluctuating or the question does not say.