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.

Answer 1

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 $=\frac{\text{Time left after first drawing +Time left after last drawing}}{2}$

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

Average Period $=\frac{\text{12 months +1 month}}{2}=6\frac{1}{2}\text{months}$

Interest on the whole amount will be calculated for $6\frac{1}{2}$ months:

Interest $=24,000\times \frac{15}{100}\times \frac{6.5}{12}$ = Rs 1,950

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

Average Period $=\frac{\text{11 months +0 month}}{2}=5\frac{1}{2}\text{months}$

Interest on the whole amount will be calculated for $5\frac{1}{2}\text{months}:$

Interest $=24,000\times \frac{15}{100}\times \frac{5.5}{12}$ = Rs 1,650

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

Average Period $=\frac{\text{11.5 months+0.5 month}}{2}=6\text{months}$

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

Interest $=24,000\times \frac{15}{100}\times \frac{6}{12}=Rs\mathrm{1.800.}$