Question

Mr. Ronnie is a partner in a firm during the year ended 31 st December 2017, he drew as follows: February 1 st ₹ 5,000 May 1 st ₹12,500 June 30 th ₹ 5,000 October 31 st ₹15,000 December 1 st ₹ 5,000 Calculate total interest charged on his drawings if interest is charged @ 10% per annum with the help of product method.​

Answer 1

Given: Mr Ronnie made the following drawings:

• February 1st - Rs 5,000
• May 1st - Rs 12,500
• June 30th Rs 5,000
• October 31st - Rs 15,000
• December 1st - Rs 5,000

To find: The interest on drawings using the Product Method.

Answer:

$\begin{array}{|c|c|c|c|}\cline{1-4}\bf Date & \bf Amount & \bf Number\ of\ Months & \bf Product\\\cline{1-4}\sf 1st\ Feb & 5,000 & 11 & 55,000\\\cline{1-4}\sf 1st\ May & 12,500 & 8 & 1,00,000\\\cline{1-4}\sf 30th\ June & 5,000 & 6 & 30,000\\\cline{1-4}\sf 31st\ Oct & 15,000 & 2 & 30,000\\\cline{1-4}\sf 1st\ Dec & 5,000 & 1 & 5,000\\\cline{1-4}\bf Total & \bf 42,500 & & \bf 2,20,000\\\cline{1-4}\end{array}$

In the product method, we take the amounts withdrawn, the number of months left up to the ending month, [31st December in this case] and multiply them to get the product.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 = (2,20,000 × 10 × 1)/1200

Interest on drawings = 22,00,000/1200

Interest on drawings = Rs 1833.33

Therefore, the interest on drawings is Rs 1833.33.