Interest on drawing0

how can calculate interest on drawings

1. If the partnership deed is silent about the payment of interest on drawings, no interest charged. If deed allowed, interest on drawings is calculated on the basis of time period. The different methods used for computing interest on drawings are discussed bellow.

2. Method 1 :Amount of withdrawal Rate of interest Date of withdrawal are given Interest on Drawings= Amount X Rate of Interest X Time Period Eg : Mr X withdraw Amount of Rs 10000, Rate of interest 10% and Date of withdrawal 1 Sept 2019. Calculate interest on drawings Interest on drawings=10000 x 10% x 4/12* = 500

3. Method 2: Date of withdrawal not given but the amount and rate of interest given. (assumed as 6 months on an average) Eg : Mr X withdraw Amount of Rs 10000, Rate of interest 10%. Calculate interest on drawings Interest on drawings 10000 x 10% x 6/12 = 500

4. Method 3: Fixed amount withdrawn every month: If a fixed amount is withdrawn at regular intervals , such as a. First day of every month b. Middle of every month c. Last day of every month The interest on drawings can be calculated on the basis of average period

5. Cases Average Period A . First Day of Every Month 6.5 months ( Total period in months + 1)/2 B . Middle of Every Month 6 months Total period in months /2 C. Last Day of Every Month 5.5 months ( Total period in months -1)/2 Average Period

6. If the amount is withdrawn on the first day of every month: Eg : Mr X withdraw Amount of Rs 12000 On the first day of every month, Rate of interest 10%. Calculate interest on drawings Interest on drawings=12000x 6.5/12 x 10/100 = 650

7. b. If the amount is withdrawn on the middle of every month: Eg : Mr X withdraw Amount of Rs 12000 On the middle of every month, Rate of interest 10%. Calculate interest on drawings Interest on drawings 12000 x 6/12 x 10/100 = 600

8. c. If the amount is withdrawn on the last day of every month: Eg : Mr X withdraw Amount of Rs 12000 On the Last day of every month, Rate of interest 10%. Calculate interest on drawings Interest on drawings=12000 x 5.5/12 x 10/100 = 550

9. Methods 4 : If the amount is withdrawn at each quarter (3 months) If the amount is withdrawn in the beginning of each quarter If the amount is withdrawn at the middle of each quarter c. If the amount is withdrawn at the end of each quarter

10. Cases Average Period a . Beginning of each quarter 7.5 months (12+3)/2 = 15/2 = 7.5 months b . Middle of each quarter 6 months 12 / 2 = 6 months. c . End of each quarter 4.5 months (12-3)/2 = 9/2 = 4.5 months. Average Period

11. If the amount is withdrawn in the beginning of each quarter b. If the amount is withdrawn at the middle of each quarter c. If the amount is withdrawn at the end of each quarter

12. Method 5 : Different amounts withdrawn at different Intervals: here the interest may be calculated with the help of Product Method Product Method – Steps: i . Calculate the time period between the date of withdrawal and the date of closing the accounts. e.g., 10 months, 8 months, 7 months etc.

13. ii. Multiply the period so calculated by the respective amount of drawings, this is called the Product e.g., 1. 10000 x 10 months = 100,000 2. 10000 x 8 months = 80,000 3. 10000 x 7 months = 70,000 iii. Add up the various products e.g., 1. 10000 x 10 months = 100,000 2. 10000 x 8 months = 80,000 3. 10000 x 7 months = 70,000 Total =250,000

14. iv. Calculate the interest for one month on the sum of products at the rate of percentage i.e., 250,000 x 1/12 x 10% = Rs.2083

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