There is a loss for the year, but the partnership deed clearly provides for interest on drawings. How should interest on drawings be shown in the appropriation account?

Correct answer: It will be shown as a credit item

Interest on drawings is a recovery from the partner and represents income of the firm, so it is shown on the credit side of the appropriation account. Even if the year results in a loss, provisions in the deed are applied and such income is credited. Option D is wrong because interest on capital is an expense paid to partners (a debit item), which is the opposite of interest on drawings. Exam tip: Always follow the deed — treat interest on drawings as income (credit) irrespective of a profit or loss position.