Question

Under what circumstances Average Method of calculating interest on drawings is applied?

Answer 1

Interest on Drawings can be calculated by two methods:-

1.Simple Average Method.

2.Product Method

Average Method of Calculating Interest on Drawings can be used under these circumstances:-

1. When fixed amounts are drawn at equal intervals let say monthly/quarterly/annually.

2. When Fixed amounts are withdrawn in the beginning of the month.

3. When Fixed amounts are drawn at the end of the month

4. When fixed amounts are drawn in the middle of the month.