Question

A partner draws $Rs.$ 1,000 per month. Under the Partnership Deed, interest on drawings is to be charged @ $15\%$ p.a. Calculate interest that should be charged to the partner if the drawings are made:
(i) in the beginning of the month,
(ii) in the middle of the month, or
(iii) at the end of the month.

Answer 1

Interest in the three situations will be:
(i) Total Drawings in the year $=Rs.12,000$, Rate of Interest $=15\%$ p.a.
Interest on Drawings $=\frac{Rs.12,000\times 15}{100}\times \frac{6\frac{1}{2}}{12}=Rs.975$.
Average Period $=\frac{\text{Months left after first Drawing + Months left after lait Drawing}}{2}=$
*Average Period $=\frac{\text{12 Months+1 Months}}{2}=6\frac{1}{2}$ Months.
(ii) Total Drawings in the year $=12,000$, Rate of Interest $=15\%$ p.a.
* Interest on Drawings $=\frac{12,000\times 15}{100}\times \frac{6\ast }{12}=Rs.900$.
*Average Period $=\frac{11\frac{1}{2}Months+\frac{1}{2}Month}{2}=6$ Months.
(iii) Total Drawing in the year $=Rs.12,000$, Rate of Interest $=15\%$ p.a
Interest on Drawing $=\frac{Rs.12,000\times 15}{100}=\frac{5\frac{1}{2}\ast }{12}=Rs.825$.
*Average Preriod $=\frac{\text{11 Month + 0 Month}}{2}=5\frac{1}{2}$ Months