Question

Aarushi and Simran are partners in a firm. During the year ended on 1st March, 2015 Simran makes the drawings as under:​​​​​​​​​(3)
Date of Drawing
Amount (Rs.)
01-09-2015
30-11-2014
31-01-2015
6,000
12,000
10,000
Partnership Deed provided that partners are to be charged interest on drawing @ 12% p.a. Calculate the interest on drawings using the product method.

Answer 1

Given data:

• Aarushi and Simran are partners in a firm.
• During the year 2015, Simran makes drawings on 1st September 2015, 30th November 2014 and 31st January 2015 at Rs 6,000, Rs 12,000 and Rs 10,000 respectively.
• Partnership Deed conveys that the interest on drawings is to be charged at 12% p.a.

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

Answer:

$\begin{array}{|c|c|c|c|}\cline{1-4}\bf Date & \bf Amount & \bf Number\ of\ Months & \bf Product\\\cline{1-4}\sf 30th\ Nov & 12,000 & 4 & 48,000\\\cline{1-4}\sf 31st\ Jan & 10,000 & 2 & 20,000\\\cline{1-4}\bf Total & \bf 22,000 & & \bf 68,000\\\cline{1-4}\end{array}$

In the product method, we take the amounts withdrawn, the number of months left up to the ending month, [31st March, 2015 in this case] and multiply them to get the product. The interest on drawings for one month is calculated using the formula below:

Interest on drawings = (Total product × Rate × 1)/(100 × 12)

Interest on drawings = (Rs 68,000 × 12 × 1)/1200

Interest on drawings = Rs 8,16,000/1200

Interest on drawings = Rs 680

Therefore, the interest on drawings is Rs 680.

NOTE: The accounting period referred to in the question is April 1st, 2014 - March 31st, 2015. The amount drawn by Simran on the 1st of September 2015 has not been included since that comes under the accounting period April 1st, 2015 - March 31, 2016.