PRC-1 · Chapter 10 · Question 32 of 100
In a partnership, how is 'Interest on Drawings' treated in the Profit and Loss Appropriation Account?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is added to the net profit to increase the residual profit available for distribution.
Explanation
Interest on drawings is essentially a penalty charged to partners for withdrawing funds early. It acts as an income to the partnership, increasing the pool of distributable profit.
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