Govind is a partner in a firm. He withdrew the following amounts during the year 2019-2020: April 30, 2019: Rs. 6,000; June 30, 2019: Rs. 4,000; Sept. 30, 2019: Rs. 8,000; Dec. 31, 2019: Rs. 3,000; Jan. 31, 2020: Rs. 5,000. The interest on drawings is to be charged @ 6% p.a. The books are closed on March 31, every year. Calculate interest on drawing:
Interest on Drawings: Rs. 845
Explanation
Interest on drawings is calculated on the amount withdrawn for the period remaining in the financial year from the date of withdrawal to the closing date (March 31). Since specific dates are given, the Product Method is applied. Each withdrawal amount is multiplied by the number of months remaining in the year to find the 'Product'. The total interest is then calculated on the sum of these products using the formula: Interest = Total Product × (Rate/100) × (1/12).
Solution Steps
Step 1: Calculate the number of months from the date of each withdrawal to March 31, 2020.
- April 30, 2019: 11 months
- June 30, 2019: 9 months
- Sept. 30, 2019: 6 months
- Dec. 31, 2019: 3 months
- Jan. 31, 2020: 2 months
Step 2: Calculate the product for each withdrawal (Amount × Months).
- April 30: 6, = Rs. 66,000
- June 30: 4, = Rs. 36,000
- Sept. 30: 8, = Rs. 48,000
- Dec. 31: 3, = Rs. 9,000
- Jan. 31: 5, = Rs. 10,000
Step 3: Sum the products. Total Product = 66,000 + 36,000 + 48,000 + 9,000 + 10,000 = Rs. 1,69,000
Step 4: Calculate Interest on Drawings. Interest = Total Product × (Rate/100) × (1/12) Interest = 1,69,000 × (6/100) × (1/12) Interest = 1,69,000 × (1/200) Interest = Rs. 845