Question

what is the formula of calculating interest on drawing by simple method???

Answer 1

Hey Friend..... :-)

Here Is your answer

The drawings are usually made by the partners at regular intervals. Thus, the interest on drawings is calculated with reference to the time period involved. It can be worked out by any one of the following methods:

1. When dates of drawings are not given:

(i) Average period method: If the dates of drawings are not given, the interest on drawings is calculated on the average basis on the total amount of drawings made during the accounting period for half of the accounting period. It is based on the assumption that the amounts were drawn evenly through out the accounting year.

Formula: Interest on drawings = Total drawings × Rate/100 × 6/12

(ii) Average rate of interest method or when drawings are made irrespective of the time period: Sometimes the average rate of interest is given in the question, in such a case; it is assumed that the rate of interest is already half on the basis of 6 months. Thus, time will not be considered.

Formula: Interest on drawings = Total drawings × Average Rate/100

2. When dates of drawings are given:

(i) Product Method: When different amounts are withdrawn at different intervals, the interest will be calculated with the help of product method. In this each amount of drawings is multiplied with number of days/months (from the date of drawings to the date of final accounts) to find out the product and then products are totaled. Interest is calculated on total product at the rate of interest for one month or one day.

Formula: Interest on drawings = Total of Product × Rate/100 × 1/365 or 1/12

Hope it Helps

Thanks..... :D