When a fixed amount is withdrawn by partners at equal time intervals, the calculation of interest on drawings determined based on the timing of the withdrawals.
Which of the following statement is correct?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- All of the above options are correct.
Average period is calculated for calculating interest on drawings and the average period depends on the timing of withdrawal.
The formula for calculating the average period is = (Months left after Ist drawing + Months left after last drawing) / 2
After calculating the average period interest on drawings is calculated. The formula for calculating interest on drawing is = Total drawings X Rate of interest/100 X Average period/12
When the amount is withdrawn at the first day of each month
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (11+1)/ 2
= 6.5 months
When the amount is withdrawn at the middle of each month
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (11.5+0.5)/ 2
= 6 months
When the amount is withdrawn at the end of each month
Average Period = (No. of months left after 1 drawings + No. of months left after last drawings)/2
= (11+0)/ 2
= 5.5 months