♦ Average Due Date is one on which the net amount payable can be settled without causing loss of interest either to the borrower or the lender.
♦ It is used in various cases like:
(i) Calculation of interest on drawings of partners.
(ii) Cancellation of various bills of exchange due on different dates and issuance of a Single bill.
(iii) Amount lent in one instalment and repayable in various instalments.
When the amount is lent in various instalments then average due date can be calculated as :
♦ When interest is chargeable on drawings, and drawings are on different dates, interest may be calculated on the basis of Average Due Date of drawings.
♦ Average due date in a case where the amount is lent in one instalment and repayment is done in various instalments will be:
Every promissory note or bill of exchange (other than those payable on demand or at sight or on presentment) falls due on the third day after on which it is expressed to be payable. This exempted period of three days is called days of grace.
Multiple Choice Questions
Ques 1: If payment is made on the average due date it results in-
(a) Loss of interest to the creditor.
(b) Loss of interest to the debtor.
(c) No loss of interest to either of them.
Ques 2: A mean date is calculated
(a) In connection with the settlement of contra accounts.
(b) For a lump sum payment.
(c) For several payments on different dates.
Ques 3: If payment is made after average due date, the party entitled to interest is
Ques 4: When due date is a public holiday, then the due date will be.
(a) Succeeding business day
(b) Preceding business day
(c) Due date will not change and will remain same.
Ques 5: A Bill due on 29th January, 2015 is made payable at one month after date. The due date of instrument
(a) 28th February, 2015.
(b) 29th February, 2015.
(c) 3rd March, 2015.
Ques 1: Define Average Due Date.
Ans: In business enterprises, many receipts and payments by and from a single party may occur at different points of time. To simplify the calculation of interest involved for such transactions, the idea of average due date has been developed. Average Due Date is a break-even date on which the net amount payable can be settled without causing loss of interest either to the borrower or the lender.
Ques 2: List out the various instances when Average Due Date can be used.
Ans: Few instances where average due date can be used:
(i) Calculation of interest on drawings made by the proprietors or partners of a business firm at several points of time.
(ii) Settlement of accounts between a principal and an agent.
(iii) Settlement of contra accounts, that is, A and B sell goods to each other on different dates.
Ques 1: Mr. Yash and Mr. Harsh are partners in a firm. They had drawn the following amounts from the firm during the year ended 31.03.2016:
Interest is charged @ 10% p.a. on all drawings. Calculate interest chargeable from each partner by using Average due date system. (Consider 1st May as base date)
Ans: Calculation of Interest chargeable from Partners
Thus, interest amounting ' 8,348 will be charged from Yash and amount of ₹ 5,525 will be charged from Harsh.
Ques 2: Anand purchased goods from Amirtha, the average due date for payment in cash is 10.08.2016 and the total amount due is ₹ 67,500. How much amount should be paid by Anand to Amirtha, if total payment is made on following dates and interest is to be considered at the rate of 12% p.a.
(i) On average due date.
(ii) On 25th August, 2016.
(iii) On 30th July, 2016.