John Ibrahim, a partner in Ancient Tours and Travels, withdrew money during the year ending March 31, 2020, fr

Question

John Ibrahim, a partner in Ancient Tours and Travels, withdrew money during the year ending March 31, 2020, from his capital account for personal use. He withdrew Rs. 3,000 per month at the beginning of every month. Calculate the interest on drawings that should be charged from John Ibrahim if the r

Accepted Answer

When a fixed amount is withdrawn at regular intervals on the beginning of every month, interest is calculated using the average period shortcut method.Calculate the Average Period:

Average Period = \frac{Months left after 1st drawing + Months left after last drawing}{2}

Average Period = \frac{12 + 1}{2} = 6.5 months

Calculate Total Drawings:

Total Drawings = Rs. 3, 000 \times 12 = Rs. 36, 000

Compute Interest on Drawings:

Interest = Total Drawings \times \frac{Rate}{100} \times \frac{Average Period}{12}

Interest = 36, 000 \times \frac{9}{100} \times \frac{6.5}{12}

Interest = 360 \times 9 \times \frac{6.5}{12} = 30 \times 9 \times 6.5

Interest = 270 \times 6.5 = Rs. 1, 755

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