The deed states profits are to be appropriated in this order: partners' salary first, interest on capital next, and then the remaining profit distributed among partners. According to this clause, which item will be deducted first?

Correct answer: Partners' salary

The deed's appropriation order is binding and must be followed exactly. Since the deed specifies partners' salary first, that item is deducted from profit before interest on capital or distribution. Interest on capital is the next appropriation and distribution of remaining profit is the final step. Interest on drawings is typically a charge on the partner’s account and does not replace the deed's stated appropriation order. Exam tip: always apply appropriations in the exact sequence shown in the deed; identify whether an item is an appropriation or a charge on partner's account.