Distribution of Profits

The profits and losses of the firm are distributed among the partners in an agreed ratio. This ratio is agreed as per the terms given in partnership deed.

However, if the partnership deed is silent, the firm’s profits and losses are to be shared equally by all the partners.

We know that in the case of sole partnership the profit or loss, as ascertained by the profit and loss account is transferred to the capital account of the proprietor.

However, In the case of Partnership, certain adjustments such as interest on drawings, interest on capital, salary to partners, and commission to partners are required to be made.

For this purpose, we need to prepare a new account to apportion the profit derived from profit and loss account. This is the stage where birth of a P&L Appropriation account takes place.

This new Account is called Profit and Loss Appropriation Account of the firm and ascertain the final figure of profit and loss to be distributed among the partners, in their profit sharing ratio.