Which of the following statement is true for the average period while calculating interest on partner's drawings?
A) When fixed amount is withdrawn at the end of each quarter by a partner, then interest on drawing will be charged for a period of 6 months
B) When fixed amount is withdrawn at the beginning of each quarter by a partner, then interest on drawing will be charged for a period of 7.5 months
C) When fixed amount is withdrawn at the end of each month by a partner, then interest on drawing will be charged for a period of 6 months
D) When fixed amount is withdrawn at the beginning of each month by a partner, then interest on drawing will be charged for a period of 6.5 months
Choose the correct answer from the options given below.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- B and D only.
A) When fixed amount is withdrawn at the end of each quarter by a partner, then interest on drawing will be charged for a period of 6 months- THIS IS FALSE.
When the amount is withdrawn at the end of each quarter.
Ist drawing = 30th June, so months left after it are 9.
Last drawing = 31st March, so months left after it are 0.
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (9+0)/ 2
= 4.5 months
B) When fixed amount is withdrawn at the beginning of each quarter by a partner, then interest on drawing will be charged for a period of 7.5 months- THIS IS TRUE.
When the amount is withdrawn at the beginning of each quarter.
Ist drawing = 1st April, so months left after it are 12.
Last drawing = 1st Jan, so months left after it are 3.
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (12+3)/ 2
= 7.5 months
C) When fixed amount is withdrawn at the end of each month by a partner, then interest on drawing will be charged for a period of 6 months- THIS IS FALSE.
Ist drawing = 30 April. So, months left after ist drawing is 11.
Last drawing = 31 March. So, months left after last drawing is 0.
Average period = (Months left after ist drawings + Months left after last drawings)/2
= (11+0)/2
= 11/2
= 5.5
D) When fixed amount is withdrawn at the beginning of each month by a partner, then interest on drawing will be charged for a period of 6.5 months- THIS IS TRUE.
When the amount is withdrawn at the beginning of each month.
Ist drawing = 1st April, so months left after it are 12.
Last drawing = 1st March, so months left after it are 1.
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (12+1)/ 2
= 6.5 months