Distribution of Profits Amongst Partners

The appropriation section(often described as profit and loss appropriation account) follows the profit and loss account and shows how net profit has been distributed amongst the partners. The net profit is transfered to the credit of profit has been distributed amongst the partners; and interest allowed on capital are debited and interest charged on drawings is credited. Thereafter, the balance is transfered to the capital accounts or current accounts(in case of fixed capital) of the partners in the profit sharing ratio as stated in the partnership deed, otherwise it is shared equally.
Profit and Loss Appropriation A/c is an extension of the Profit and Loss A/c. It is used to show how the Profit and Loss A/c balance-Net Profit-is shared by the partners.
Journal Entries relating to Profit and Loss Appropriation Account
1. For Interest on Capital
   (i) Interest on Capital A/c        ... Dr.
          To Partners' Capital(or current, if capital accounts are fixed) Accounts(individually)
   (ii) Profit and Loss Appropriation A/c    ...Dr.
           To interest on Capital A/c
        Alternatively, only one entry may be passed, as follows:
        Profit and Loss Appropriation A/c   ...Dr.
           To Partners' Capital Accounts(Individually)
2. For Interest on Drawings
   (i) Partners' Capital(or current, if Capital accounts are fixed) Accounts(individually)   ...Dr
          To Interest on Drawings A/c
   (ii) Interest on Drawings A/c    ...Dr.
           To Profit and Loss Appropriation A/c
3. For Partner's Salary/Commission
   (i) Partners, Salary/Commission A/c     ...Dr.
          To Partner's Capital(or current, if Capital accounts are fixed) A/c
   (ii) Profit and Loss Appropriation A/c   ...Dr
           To Partner's Salary/Commission
4. For Transfer to Reserve
        Profit and Loss Appropriation A/c  ...Dr.
           To Reserve A/c
5. For Transfer of Credit Balance(being Profit)
        Profit and Loss Appropriation A/c    ...Dr
           To Partners' Capital(or current, if Capital accounts are fixed) Accounts(Individually)