If net profit is Rs 85,000 and interest on partner loan of Rs 5,000 has not yet been recorded, what will be the correct net profit before appropriation?

Correct answer: Rs 80,000

The governing concept is that interest on a partner’s loan is a charge against profit, not an appropriation of profit. It must therefore be recorded before the Profit and Loss Appropriation Account is prepared. The given net profit of Rs 85,000 is before recording the omitted interest expense. Subtracting the outstanding interest gives: corrected profit before appropriation = Rs 85,000 − Rs 5,000 = Rs 80,000. Thus option A is correct. Option C ignores the omitted expense, option B adds the expense instead of deducting it, and option D gives only the interest amount rather than the corrected profit. The adjustment affects profit first and is not distributed among partners as an appropriation.