Question

Calculate the interest on drawings of Mr. Bajaj at 10% p.a. for the year ended 31st March, 2016 in each of the following alternative cases :

Case (a) lf he withdrew Rs 8,000 in the beginning of each quarter.

Case (b) If he withdrew Rs 8,000 at the end of each quarter.

Case (c) If he withdrew Rs 8,000 during the middle of each quarter.

Answer 1

Total drawings for the year $=Rs8,000\times 4$ times in a year = Rs 32,000

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

Case (a) Average Period $=\frac{\text{12 months +3 months}}{2}=7.5\text{months}.$

Interest on Drawings $=Rs32,000\times \frac{10}{100}\times \frac{7.5}{12}=Rs2,000$

Case (b) Average Period $=\frac{\text{9 months +0 month}}{2}=4.5\text{months}.$

Interest on Drawings $=Rs32,000\times \frac{10}{100}\times \frac{4.5}{12}=Rs1,200$

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

Interest on Drawings $=Rs32,000\times \frac{10}{100}\times \frac{6}{12}=Rs1,600$