If interest on drawings is credited in the Profit and Loss Appropriation Account, how does it affect the remaining profit?

Correct answer: It increases remaining profit

The governing concept is that interest on drawings is income for the firm, even though it is charged to the partner who made the drawings. A credit in the Profit and Loss Appropriation Account increases the amount available for distribution among partners. For example, if the profit available before this credit is Rs 50,000 and interest on drawings is Rs 2,000, the balance available before other appropriations becomes Rs 52,000. It therefore increases remaining profit or reduces a loss to be shared. Option B reverses the effect, option C ignores the credit, and option D treats it only as a memorandum adjustment. Hence option A is correct.