Why is Profit and Loss Appropriation Account prepared?
The Profit and Loss Appropriation Account is prepared because it is merely an extension of the Profit and Loss Account of the firm. It is prepared to show how the profits are appropriated or distributed among the partners.
This account is essential for making all adjustments in respect of partner’s salary, partner’s commission, interest on capital, and interest on drawings. It starts with the net profit or net loss as per the Profit and Loss Account, and the final balance is distributed among the partners in their profit-sharing ratio.
Explanation
The answer is derived directly from Section 1.5.1 of the provided text, which defines the Profit and Loss Appropriation Account as an extension of the Profit and Loss Account. The text explicitly lists its purpose: showing the appropriation of profits among partners and facilitating adjustments for salary, commission, interest on capital, and interest on drawings.