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Question

A, B and C are partners in a firm. You are informed that:

(i) A draws Rs 2,000 from the firm in the beginning of every month,

(ii) B draws Rs 2,000 from the firm at the end of every month, and

(iii) C draws Rs 2,000 from the firm in the middle of every month.

Interest on drawings is to be charged at 15% p.a. Calculate interest on partner's drawings.

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Solution

When drawings of equal amount are made at regular intervals, interest will be calculated for average period. Average Period will be calculated as per the following formula:

Average Period =Time left after first drawing +Time left after last drawing2

(i) If drawings of a regular amount are made in the beginning of every month:

Average Period =12 months +1 month2=612 months

Interest on the whole amount will be calculated for 612 months:

Interest =24,000×15100×6.512 = Rs 1,950

(ii) If drawings of a regular amount are made at the end of every month:

Average Period =11 months +0 month2=512 months

Interest on the whole amount will be calculated for 512 months:

Interest =24,000×15100×5.512 = Rs 1,650

(iii) If drawings are made in the middle or at any time during the month:

Average Period =11.5 months+0.5 month2=6 months

Interest on the whole amount will be calculated for 6 months:

Interest =24,000×15100×612=Rs 1.800.


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