The below Profit and Loss appropriation account MCQ are designed for conceptual clarity. Attempt the test and check your concepts now!!!
MCQ Quiz - Practice Questions
MCQ Quiz
Question 1
What is the primary purpose of preparing a Profit and Loss Appropriation Account?
B
Correct Answer: To show how the net profit is distributed among the partners.
The Profit and Loss Appropriation Account details how the firm's net profit or loss is divided among the partners through items like salary, interest on capital, etc.
Question 2
Which of the following items is typically debited to the Profit and Loss Appropriation Account?
C
Correct Answer: Salary to partners.
Salary to partners is an appropriation of profit, hence it is debited to the Profit and Loss Appropriation Account.
Question 3
The balance of the Profit and Loss Account (after all charges) is transferred to which account?
B
Correct Answer: Profit and Loss Appropriation Account.
The net profit or loss, which is the balance of the Profit and Loss Account after accounting for all charges against profits, is then transferred to the Profit and Loss Appropriation Account for distribution.
Question 4
Interest on drawings is treated in the Profit and Loss Appropriation Account as:
B
Correct Answer: A credit.
Interest on drawings effectively increases the distributable profits of the firm, so it is credited to the Profit and Loss Appropriation Account.
Question 5
Which of the following is an example of an appropriation of profits?
C
Correct Answer: Transfer to General Reserve.
Transfer to General Reserve is a decision to set aside a portion of the profit, which is an appropriation of profit.
Question 6
If the Partnership Deed is silent, what is the treatment of interest on capital?
B
Correct Answer: It will generally not be allowed.
Unless explicitly stated in the Partnership Deed or agreed upon, interest on capital is usually not allowed.
Question 7
Which of the following is considered a charge against profits?
C
Correct Answer: Interest on partner's loan.
Interest on a partner's loan is a charge against profits and must be paid whether the firm makes a profit or not.
Question 8
Salary to partners is paid:
C
Correct Answer: Only when there are profits.
Salary to partners is an appropriation of profit and is paid out of the firm's profits.
Question 9
Rent paid to a partner for the use of their premises by the firm is generally treated as a:
B
Correct Answer: Charge against profit.
Rent paid to a partner is usually considered a charge against profit, similar to rent paid to an outsider.
Question 10
Interest on a loan taken by a partner from the firm is:
C
Correct Answer: Credited to Profit and Loss Account.
Interest received by the firm on a loan to a partner is an income for the firm and is ultimately credited to the Profit and Loss Account.
Question 11
The Profit and Loss Appropriation Account is an extension of the:
B
Correct Answer: Profit and Loss Account.
The Profit and Loss Appropriation Account starts with the net profit or loss figure derived from the Profit and Loss Account.
Question 12
When the total appropriations exceed the net profit :
C
Correct Answer: Appropriations are limited to the extent of profit (plus interest on drawings).
Appropriations can only be made if there is sufficient profit (including interest on drawings).
Question 13
In the absence of a Partnership Deed regarding interest on a loan by a partner to the firm, the partner is entitled to receive interest at what rate per annum?
C
Correct Answer: 6%.
The Indian Partnership Act, 1932 states that if there is no agreement on the rate of interest on a partner's loan to the firm, the partner is entitled to 6% per annum.
Question 14
Which of the following accounts has a credit balance?
C
Correct Answer: Interest on Drawings Account (before closing entry).
Interest on drawings is an income for the firm and thus has a credit balance before being transferred to the Profit and Loss Appropriation Account.
Question 15
Which account is debited when transferring interest on capital to the Profit and Loss Appropriation Account?
B
Correct Answer: Profit and Loss Appropriation Account.
To close the Interest on Capital Account and record it in the Profit and Loss Appropriation Account, the Profit and Loss Appropriation Account is debited.
Question 16
The term "distributable profit" refers to:
B
Correct Answer: Net profit + Interest on Drawings - Appropriations
Distributable profit is the profit which is distributed among the partners in the profit sharing ratio after all other appropriations are done. (Net profit + Interest on Drawings - Appropriations)
Question 17
Commission to partners is an:
C
Correct Answer: Appropriation of profit.
Commission to partners is a way of distributing the firm's profit among the partners.
Question 18
When preparing the Profit and Loss Appropriation Account, the net profit as per the Profit and Loss Account is shown on the:
A
Correct Answer: Credit Side
The Profit and Loss Appropriation Account begins with the net profit brought down from the Profit and Loss Account, which is shown on the credit side.
Question 19
Which of the following is paid whether the firm earns profits or incurs losses?
D
Correct Answer: Interest on partner's loan to the firm.
Interest on a partner's loan to the firm is a charge against profits and must be paid even if the firm incurs losses.
Question 20
If the question states that interest on capital is to be treated as a charge against profits, it will be debited to the:
A
Correct Answer: Profit and Loss Account.
When interest on capital is treated as a charge, it becomes an expense that is debited to the Profit and Loss Account, similar to other charges like rent.
