Question

A, B and C were in partnership sharing profits and losses in the proportions of 3 : 2 : 1. On 1st April, 2024, B retires from the firm and A and C decided to share future profits in the ratio of 3 : 2. On that date their capitals were as follows: A ₹ 1,77,000; B ₹ 1,70,000 and C ₹ 1,23,000. Loss on revaluation of assets amounted to ₹ 30,000. Amount due to B was paid on this date by giving him 40,000 over and above the amount due to him. As per partnership deed, partners are allowed 6% p.a. interest on their capitals. Profit for the year ending 31st March 2025 before allowing interest on capitals amounted to ₹ 10,000.

On the basis of above information, answer the following question:

In the above case, Interest on Partner's Capital:

Options

• Is a charge against profit

• Is an appropriation out of profit

• Will be credited to Profit & Loss Appropriation Account

• Will be credited to all Partner's Capital Accounts (including B)

Answer 1

Is an appropriation out of profit