Question

Calculate the interest on drawings of Mr. Arun at 10% p.a. for the year ended 31st March,2017 in each of the following alternative cases:

Case (a) If he withdrew Rs 5,000 p.m. in the beginning of every month;

Case (b) If he withdrew Rs 5,000 p.m. at the end of every month;

Case (c) If he withdrew Rs 5,000 p.m. during the year;

Case (d) If he withdrew Rs 60,000 during the year;

Case (e) If he withdrew as follows:

$\begin{array}{cc}& Rs\\ \text{1st June, 2016}& 20,000\\ \text{31st August, 2016}& 10,000\\ \text{31st Oct., 2016}& 18,000\\ \text{1st Feb., 2017}& 12,000\end{array}$

Case (f) If he withdrew Rs 15,000 in the beginning of each quarter;

Case (g) If he withdrew Rs 15,000 at the end of each quarter;

Case (h) If he withdrew Rs 15,000 during the middle of each quarter;

Answer 1

Case (a) Average Period $=\frac{\text{12 months +1 month}}{2}=6\frac{1}{2}\text{months}.$

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{6.5}{12}=Rs3,250$

Case (b) Average Period $=\frac{\text{11 months +0 month}}{2}=5\frac{1}{2}\text{months}.$

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{5.5}{12}=Rs2,750$

Case (c) Assuming that the drawings were made in the middle of every month:

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

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{6}{12}=Rs3,000$

Case (d) As the date of drawing is not given, interest will be calculated for an average period of 6 months.

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{6}{12}=Rs3,000$

Case (e)

$\begin{array}{cccc}\text{Date}& \text{Amount of Drawing}& \text{Period (months upto)}& \text{Products}\\ & & \text{31st March, 2017}& \\ & Rs& & Rs\\ \text{1st June, 2016}& 20,000& 10& 2,00,000\\ \text{31st August, 2016}& 10,000& 7& 70,000\\ \text{31st Oct., 2016}& 18,000& 5& 90,000\\ \text{1st Feb., 2017}& 12,000& 2& 24,000\\ & & & \underset{–}{\overline{3,84,000}}\end{array}$

Interest on Drawings $=Rs3,84,000\times \frac{10}{100}\times \frac{1}{12}=Rs3,200$

Case (f) Average Period $=\frac{\text{12 months +3 months}}{2}=7\frac{1}{2}\text{months}$

Total Drawings for the year $=Rs15,000\times 4$ times in a year = Rs 60,000

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{7.5}{12}=Rs3,750$

Case (g) Average Period $=\frac{\text{9 months +0 month}}{2}=4\frac{1}{2}\text{months}$

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{4.5}{12}=Rs2,250$

Case (h) Average Period $=\frac{\text{10.5 months +1.5 months}}{2}=6\text{months}$

Interest on Drawings $=Rs60,000\times \frac{10}{100}\times \frac{6}{12}=Rs3,000$