If interest on drawings is wrongly treated as interest on capital and debited, what is the effect on the Profit and Loss Appropriation Account?

Correct answer: Profit will appear lower by twice the interest amount

The governing concept is the opposite treatment of interest on drawings and interest on capital in the appropriation account. Interest on drawings is income for the firm and should be credited to the Profit and Loss Appropriation Account. Interest on capital is an appropriation or charge on that account and should be debited. If drawings interest of Rs X is wrongly treated as capital interest, Rs X is debited instead of being credited. Compared with the correct treatment, the account changes from a credit of X to a debit of X, a total adverse difference of 2X. Consequently, profit available for distribution appears lower by twice the interest amount. Therefore option A is correct; the other options ignore either the wrong side or the double effect.