Question

Partner A withdrew ₹ 70,000 in the middle of each half year. Calculate the rate of interest on drawings if the amount of interest charged at the end of the year was ₹ 8,400.

Answer 1

1. Calculate Total Drawings 

There are two half-years in a full financial year. Since Partner A withdraws ₹ 70,000 in each half-year, the total drawings are:

Total Drawings = 70,000 × 2 = 1,40,000

2. Determine the Average Period

The formula for the average period is:

`"Average Period" = "Months left after 1st drawing + Months left after last drawing"/2`

Assuming the accounting year runs from 1st April to 31st March:

1st Drawing: Middle of the first half-year (around 15th June) → 9.5 months remaining.

Last Drawing: Middle of the second half-year (around 15th December) → 3.5 months remaining.

`"Average Period" = (9.5 + 3.5)/2 = 6` months

3. Compute the Rate of Interest

Let the rate of interest be R% p.a.

Interest on Drawings = `"Total Drawings" xx R/100 xx "Average Period"/12`

`8,400 = 1,40,000 xx R/100 xx 6/12`

`8,400 = 1,40,000 xx R/100 xx 1/2`

`8,400 = 700 xx R`

`R = (8,400)/700 = 12%`