Find drawing on interest by product method?
Multiply all the amounts of drawings with their respective no. of months upto last day of financial year. Then add the product. now apply this formula...
total product×%interest/100×1/12
FOR EXAMPLE::
1st may, 2019-2000
1st August, 2019-5000
30th sep. 2019 -2000
31st jan. 2020-6000
31st mar. 2020-2000
ANSWER:
amounts no. of months upto 31mar, 2020 product
2000 11 22000
5000 8 40000
2000 6 12000
6000 2 12000
2000 0 0
so, total product is 86000
now applying above formula
86000×15×1/100×12
==1075
Find drawing on interest by product method?
Understanding Drawing on Interest by Product Method
Drawing on interest by product method is a financial practice that allows individuals, particularly partners in a business, to withdraw funds while considering the interest on their capital contributions. Here’s a detailed breakdown of this method.
What is Drawing on Interest?
- Definition: It refers to the amount withdrawn by partners from their capital account, which is subject to interest.
- Purpose: This method ensures that partners are compensated for their investments while maintaining a fair distribution of profits.
Product Method Explained
- Calculation of Interest:
- Interest is calculated on the average capital balance maintained by partners during the year.
- This average is determined by taking the balance at the beginning and end of the year, and considering any drawings made.
- Formula:
- Interest on Drawings = (Drawing Amount x Interest Rate x Time Period) / 100
Process of Drawing on Interest by Product Method
- Step 1: Identify the drawing amount for each partner over the accounting period.
- Step 2: Determine the interest rate applicable for the capital contributions.
- Step 3: Calculate the interest on the drawings using the formula, considering the time period for which the amount was drawn.
- Step 4: Record these calculations in the financial statements to reflect the true financial position.
Importance of Product Method
- Fairness: Ensures that all partners are treated equitably concerning their contributions and withdrawals.
- Transparency: Provides clarity in accounting, making it easier to track how much each partner has drawn and the interest implications.
By understanding this method, partners can effectively manage their finances while maintaining a balanced and fair partnership.