Question

Mohan draws 10,000 per month on the last day of every month for personal use. If interest is to be charged at 5% p.a. Interest chargeable from him in the accounting year will be:
a) 3,250 b) 2,750 c)3,000 d)3,500

Please provide answer with explanation

Answer 1

Option b) 2,750

Explanation:

Given :

• Withdrawn amount = 10,000 per month
• Time of withdrawal = On the last day of every month
• Rate of interest = 5% p.a.
• Interest on drawings = ??

Solution :

Total amount of drawings = 10,000 × 12

Total amount of drawings = 1,20,000

If drawings are made at the end of every month :

Average period = 5.5

★ Interest on drawings =$\sf{\longrightarrow{Amount \: of \: drawings \: \times \: \dfrac{Rate \: of \: interest}{100} \: \times \: \dfrac{Average \: period}{12}}}$

$\longrightarrow{\sf{1,20,000 \: \times \: \dfrac{5}{100} \: \times \: \dfrac{5.5}{12}}}$

$\sf{\longrightarrow{2,750}}$

Interest on drawings = 2,750

∴ Option b) 2,750

Interest on drawings will be 2,750.