how can calculate interest on drawings

3. Calculation of
Interest on drawings

4. Calculation of Interest on drawings
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.

5. 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

6. 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

7. Method 3: Fixed amount withdrawn every month:
If a fixed amount is withdrawn at regular intervals, such as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

8. 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

9. a. If the amount is withdrawn on the first day of every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

10. b. If the amount is withdrawn on the middle of every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

11. c. If the amount is withdrawn on the last day of every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

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 Methods 4: If the amount is withdrawn at each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a. If the amount is withdrawn in the beginning of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b. If the amount is withdrawn at the middle of each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c. If the amount is withdrawn at the end of each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

13. 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

14. a. 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

15. 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.

16. 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

17. 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

18. 2

19. EDU FACT
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