A and B are partners sharing profits equally. A drew regularly ₹ 4,000 at the end of every month for six months ended 30th September, 2018. Calculate interest on drawings @ 5% p.a. for a period of six months.
Answers
Introduction:
Interest on drawing is an income for the firm and is payable to the firm by the partners, hence it is deducted/debited. Interest is charged on money/goods borrowed by partners for personal use during the year.
Explanation:
When equal amounts are withdrawn at regular intervals of time, interest on withdrawal can be computed on the total amount drawn over the average period relevant to the first and last payment.
Calculation of interest on drawings:
Number of drawings= 6
Amount of each drawing = 4000
Total drawings= 6×₹4000
= ₹24000
Formula for number of months is = [Time left after 1st drawing + Time left after last drawing]/2
Interest on drawings= ₹24000 ×5/100 × 2.5/12
= ₹250
Therefore, the interest on drawing is ₹250
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