Question

20. X and Y are partners with capitals of Rs.50000 and Rs.40000 respectively as on 01.04.2017. During the year Y withdrew as under: Rs.2000 on 01.05.2019 Rs.6000 on 31.10.2019 Rs.4000 on 30.11.2019 Rs.6000 on 01.01.2020 Calculate interest on Y's drawings at 12% p.a. under product method for the accounting year ending 31st March 2020​

Answer 1

Given:

• X and Y are partners in a firm, with capitals Rs 50,000 and Rs 40,000 respectively.
• During the year, Y withdrew Rs 2,000 on 1st May, Rs 6,000 on 31st October, Rs 4,000 on 30th November and Rs 6,000 on 1st January.
• Interest on drawings is to be charged at 12% p.a.

To find: The interest on drawings under the product method.

Answer:

$\begin{array}{|c|c|c|c|}\cline{1-4}\bf Date & \bf Amount & \bf Number\ of\ months & \bf Product\\\cline{1-4}\sf 1st\ May & 2,000 & 11 & 22,000\\\cline{1-4}\sf 31st\ Oct & 6,000 & 5 & 30,000\\\cline{1-4}\sf 30st\ Nov & 4,000 & 4 & 16,000\\\cline{1-4}\sf 1st\ Jan & 6,000 & 3 & 18,000\\\cline{1-4}\bf Total & \bf 18,000 & & \bf 86,000\\\cline{1-4}\end{array}$

In the product method, we take the amount withdrawn, along with the number of months left from the date of withdrawal up to the end of the accounting year, i.e., March. The product of the amount withdrawn and the number of months is considered while calculating the interest.

Interest on drawings for one month = Total product × (Rate ÷ 100) × (1 ÷ 12)

Interest on drawings = Rs 86,000 × (12 ÷ 100) × (1 ÷ 12)

Interest on drawings = Rs 860

Therefore, the interest on Y's drawings at 12% p.a. is Rs 860.