Question

. Varun and Pavan are partners sharing profits and losses in the ratio of 2 : 1.
Varun withdrew Rs. 2,000 at the end of each quarter. Interest is charged at
12% per annum on partners withdrawals. Calculate interest on Varun's drawings
for the year ending 31st March, 2018 under product method.​

Answer 1

ANSWER :

• ❖ If Varun and Pavan are partners sharing profits and losses in the ratio of 2 : 1 and Varun withdrew Rs. 2,000 at the end of each quarter and Interest is charged at 2% per annum on partners withdrawals; then interest on Varun's drawings for the year ending 31st March, 2018 will be Rs. 360.

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SOLUTION :

❒ Given :-

• Varun withdrew Rs. 2,000 at the end of each quarter

• Rate of interest on drawings = 12% p.a.

❒ To Calculate :-

• Interest on drawings of Varun for the year ending 31st March, 2018 = ?

❒ Method to be Used :-

• ✎ Product Method : Product Method is the method of calculating interest on drawings under which the amounts of drawings are multiplied by the period for which it remained withdrawn during the period and then the sum of all the individual products, i.e., Total Product. After that, the interest is calculated at the prescribed rate for one month by using the following formula :

★ Interest on Drawings = Sum of products × Rate of Interest p.a. × $\sf{\dfrac{1}{12}}$

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❒ Step 1 : Calculation of Sum of Product :-

• ➻ 30th June, 2017 : Rs. 2000 for 9th months (Rs. 2000 × 9) = Rs. 18000

• ➻ 30th September, 2017 : Rs. 2000 for 6 months (Rs. 2000 × 6) = Rs. 12000

• ➻ 31st December, 2017 : Rs. 2000 for 3 months (Rs. 2000 × 3) = Rs. 6000

• ➻ 31st March, 2018 : Rs. 2000 for 0 month (Rs. 2000 × 0) = Rs. 0

∴ Sum of Products = Rs. 18000 + Rs. 12000 + Rs. 6000 + Rs. 0

➜ Sum of Products = Rs. 36000

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❒ Step 2 : Calculation of Interest on Drawings :-

• ∴ Interest on Drawings = Sum of products x Rate of Interest p.a. × $\sf{\dfrac{1}{12}}$

➜ Interest on Drawings = Rs. 36000 × $\sf{\dfrac{12}{100}}$ × $\sf{\dfrac{1}{12}}$

➜ Interest on Drawings = Rs. 36000 × $\sf{\dfrac{1}{100}}$

➜ Interest on Drawings = Rs. 360

• Hence, the interest on drawings of Varun = Rs. 360.

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❍ Alternative Method :-

• ✎ When an equal amount is withdrawn at the end of each quarter, then the interest on drawings will ve calculated on the total drawings at the specified rate of interest for the average period of 4½ months i.e. 4.5 months using the formula :

★ Interest on Drawings = Total Drawings × Rate of Interest p.a. × $\sf{\dfrac{4.5}{12}}$

Here,

• Amount withdrawn at the end of each quarter = Rs. 2000

• Rate of Interest = 12% p.a.

∴ Total Drawings = Rs. 2000 × 4 = Rs. 8000

Thus,

Interest on drawings will be calculated on Rs. 8000 for 4½ months/ 4.5 months @12% p.a.

• ∴ Interest on Drawings = Total Drawings × Rate of Interest p.a. × $\sf{\dfrac{4.5}{12}}$

➜ Interest on Drawings = Rs. 8000 × $\sf{\dfrac{12}{100}}$ × $\sf{\dfrac{4.5}{12}}$

➜ Interest on Drawings =Rs. 8000 × $\sf{\dfrac{4.5}{100}}$

➜ Interest on Drawings = Rs. 360

• Hence, the interest on drawings of Varun = Rs. 360.