Commerce Exam  >  Commerce Notes  >  Crash Course of Accountancy - Class 12  >  Interest on Drawings & Cases

Interest on Drawings & Cases | Crash Course of Accountancy - Class 12 - Commerce PDF Download

Interest on drawings

· P & L appropriation a/c cr. side
· Capital / current a/c dr. Side


Journal entry 
(i) On Charging Interest on Drawings : 
Partner’s Capital A/c Dr.

To Interest on Drawings A/c
(ii) On closure of Interest on Drawings A/c : 
Interest on Drawings A/c Dr.
To Profit & Loss Appropriation A/c


Common kahani 
Jojo and yoyo are partners in Modern Tours and Travels who had withdrew money during the year ending March 31, 2015 from his capital account, for his personal use. Calculate interest in drawings in each of the following alternative situations-

CASE 1 
Jojo had withdrawn Rs.50,000 and Yoyo had withdrawn Rs.40,000 during the year. Provide interest to them @12%p.a.

Solution- 
If date is not mentioned then interest is to be calculated for 6months
Jojo’s Interest on Drawings = 50,000 ∗ 12/10012 ∗ 6 = 3,000
Yoyo’s Interest on Drawings = 40,000 ∗ 12/100 ∗ 6/12 = 2,400

CASE 2

Jojo had withdrawn Rs.50,000  on 31st july 2014 and Yoyo had withdrawn Rs.40,000 on 1st November 2014 during the year. Provide interest to them @12%p.a.

Solution-
If date is mentioned then interest is to be calculated as per the date of drawings
Jojo’s Interest on Drawings = 50,000 ∗ 12/100 ∗ 8/12 = 4,000
Yoyo’s Interest on Drawings = 40,000 ∗ 12/100 ∗ 5/12 = 2,000

CASE 3

Jojo had withdrawn Rs.50,000  on 1st july 2014 and Yoyo had withdrawn Rs.40,000 on 30th November 2014 during the year. Provide interest to them @12%.

Solution-
If date is mentioned but rate of interest on drawings is not given with per annum then interest is to be charged for the full year , irrespective of the time period
Jojo’s Interest on Drawings = 50,000 ∗ 12/100 = 6,000

Yoyo’s Interest on Drawings = 40,000 ∗ 12/100 = 4,800


CASE 4
Provide interest to them @12%p.a. if there drawings were-


Jojo (Rs.)


Yoyo (Rs.)

2014
April, 01

5,000

7,000

September, 01

8,000

4,000

December, 31

5,000

5,000

march, 01

4,000

9,000

Solution- If amount is withdrawn on different dates then product method is to be used

Jojo’s Interest on Drawings = 1,35,000 ∗ 12/100 ∗ 1/12 = 13,500

Date

Amount

Months

Products ( amount X months)

April, 01

5,000

12

60,000

September, 01

8,000

7

56,000

December, 31

5,000

3

15,000

march, 01

4,000

1

4,000




1,35,000


Yoyo’s Interest on Drawings = 1,36,000 ∗ 12/100 ∗ 1/12 = 13,600

Date

Amount

Months

Products ( amount X months)

April, 01

7,000

12

84,000

September, 01

4,000

7

28,000

December, 31

5,000

3

15,000

march, 01

9,000

1

9,000




1,36,000


Shortcut method 
When same amount is withdrawn on the same date after the same interval. (3 same)
Months = time after the first drawings + time after the last drawings/2


CASE 5

Jojo had withdrawn Rs.5,000 at the beginning of every month  and Yoyo had withdrawn Rs.4,000 at the beginning of every month .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method 
Find 1- amount 5000 ∗ 12 = 60,000
         2 – Time after the first drawings = 12 months (from 1st April to 31st march)
         3 - Time after the last drawings = 1 month (from 1st March to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (12 + 1/2) = 13/2 = 6.5 MONTHS

Jojo’s Interest on Drawings = 60,000 ∗ 12/100 ∗ 6.5/12 = 3,900

Yoyo’s Interest on Drawings = 48,000 ∗ 12/100 ∗ 6.5/12 = 3,120

CASE 6

Jojo had withdrawn Rs.3,000 at the middle of every month  and Yoyo had withdrawn Rs.2,000 at the middle of every month .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 3000 ∗ 12 = 36,000
         2 – Time after the first drawings = 11.5 months (from 15st April to 31st march)
         3 - Time after the last drawings = .5 month (from 16st March to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (11.5 + .5/2)  = 12/2 = 6 MONTHS

Jojo’s Interest on Drawings = 36,000 ∗ 12/100 ∗ 6/12 = 2,160

Yoyo’s Interest on Drawings = 24,000 ∗ 12/100 ∗ 6/12 = 1,440


CASE 7

Jojo had withdrawn Rs.8,000 at the end of every month  and Yoyo had withdrawn Rs.7,000 at the end of every month. Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 8000 ∗ 12 = 96,000
         2 – Time after the first drawings = 11 months (from 30TH April to 31st march)
         3 - Time after the last drawings = 0 month (from 31st March to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (11 + 0/2)  = 11/2 = 5.5 MONTHS

Jojo’s Interest on Drawings = 96,000 ∗ 12/100 ∗ 5.5/12 = 5,280

Yoyo’s Interest on Drawings = 84,000 ∗ 12/100 ∗ 5.5/12 = 4,620

CASE 8

Jojo had withdrawn Rs.5,000 at the beginning of every quarter and Yoyo had withdrawn Rs.4,000 at the beginning of every quarter. Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 5000 ∗ 4 = 20,000
         2 – Time after the first drawings = 12 months (from 1ST April to 31st march)
         3 - Time after the last drawings = 3 month (from 1st January to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (12 + 3/2) = 15/2 = 7.5 MONTHS


Jojo’s Interest on Drawings = 20,000 ∗ 12/100 ∗ 7.5/12 = 1,500

Yoyo’s Interest on Drawings = 16,000 ∗ 12/100 ∗ 7.5/12 = 1200

CASE 9

Jojo had withdrawn Rs.3,000 at the middle of every quarter  and Yoyo had withdrawn Rs.2,000 at the middle of every quarter .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 3000 ∗ 4 = 12,000
         2 – Time after the first drawings = 10.5 months (from 15th may to 31st march)
         3 - Time after the last drawings = 1.5 month (from 1st February to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (10.5 +1.5/2) = 12/2 = 6 MONTHS


Jojo’s Interest on Drawings = 12,000 ∗ 12/100 ∗ 6/12 = 720

Yoyo’s Interest on Drawings = 8,000 ∗ 12/100 ∗ 6/12 = 480


CASE 10

Jojo had withdrawn Rs.15,000 at the end of every quarter  and Yoyo had withdrawn Rs.10,000 at the end of every quarter. Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 15000 ∗ 4 = 60,000
         2 – Time after the first drawings = 9 months (from 30thjune to 31st march)
         3 - Time after the last drawings = 0 month (from 31st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (9 +0/2)  = 9/2 = 4.5 MONTHS


Jojo’s Interest on Drawings = 60,000 ∗ 12/100 ∗ 4.5/12 = 2700

Yoyo’s Interest on Drawings = 40,000 ∗ 12/100 ∗ 4.5/12 = 1800


CASE 11

Jojo had withdrawn Rs.5,000 at the beginning of every month  and Yoyo had withdrawn Rs.4,000 at the beginning of every month from 1st October 2014(during a period of 6 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 5000 ∗ 6 = 30,000
         2 – Time after the first drawings = 6 months (from 1st October to 31st march)
         3 - Time after the last drawings = 1 month (from 1st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (6 +1/2)  = 7/2 = 3.5 MONTHS


Jojo’s Interest on Drawings = 30,000 ∗ 12/100 ∗ 3.5/12 = 1150

Yoyo’s Interest on Drawings = 24,000 ∗ 12/100 ∗ 3.5/12 = 840

CASE 12

Jojo had withdrawn Rs.4,000 at the middle of every month  and Yoyo had withdrawn Rs.6,000 at the middle of every month from 1st October 2014(during a period of 6 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 4000 ∗ 6 = 24,000
         2 – Time after the first drawings = 5.5 months (from 15st October to 31st march)
         3 - Time after the last drawings = .5 month (from 15st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (5.5 +.5/2)  = 6/2 = 3 MONTHS


Jojo’s Interest on Drawings = 24,000 ∗ 12/100 ∗ 3/12 = 720

Yoyo’s Interest on Drawings = 36,000 ∗ 12/100 ∗ 3/12 = 1080

CASE 13

Jojo had withdrawn Rs.7,500 at the end of every month  and Yoyo had withdrawn Rs.4,500 at the end of every month from 1st October 2014(during a period of 6 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 7500 ∗ 6 = 45000
         2 – Time after the first drawings = 5 months (from 31st October to 31st march)
         3 - Time after the last drawings = 0 month (from 31st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (5 +0/2) = 5/2 = 2.5 MONTHS


Jojo’s Interest on Drawings = 45,000 ∗ 12/100 ∗2.5/12 = 1125

Yoyo’s Interest on Drawings = 27,000 ∗ 12/100 ∗ 2.5/12 = 675

CASE 14

Jojo had withdrawn Rs.5,000 at the beginning of every month  and Yoyo had withdrawn Rs.4,000 at the beginning of every month from 1st july 2014(during a period of 9 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 5000 ∗ 9 = 45000
         2 – Time after the first drawings = 9 months (from 1st July to 31st march)
         3 - Time after the last drawings = 1 month (from 1st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (9 +1/2)  = 10/2 = 5 MONTHS


Jojo’s Interest on Drawings = 45,000 ∗ 12/100 ∗ 5/12 = 2250

Yoyo’s Interest on Drawings = 27,000 ∗ 12/100 ∗ 2.5/12 = 675

CASE 15

Jojo had withdrawn Rs.4,000 at the middle of every month  and Yoyo had withdrawn Rs.6,000 at the middle of every month from 1st july2014 (during a period of 9 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 4000 ∗ 9 = 36000
         2 – Time after the first drawings = 8.5 months (from 15th July to 31st march)
         3 - Time after the last drawings = .5 month (from 15st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (8.5 +.5/2)  = 9/2 = 4.5 MONTHS


Jojo’s Interest on Drawings = 36,000 ∗ 12/100 ∗ 4.5/12 = 1620

Yoyo’s Interest on Drawings = 54,000 ∗ 12/100 ∗ 4.5/12 = 2430

CASE 16

Jojo had withdrawn Rs.4,000 at the end of every month  and Yoyo had withdrawn Rs.6,000 at the end of every month from 1st july2014 (during a period of 9 months only) .Provide interest to them @12%p.a.

Solution-
If same amount is withdrawn on the same date after the same interval use Shortcut method
Find 1- amount 4000 ∗ 9 = 36000
         2 – Time after the first drawings = 8 months (from 1stJuly to 31st march)
         3 - Time after the last drawings = 0 month (from 31st march to 31st march)
         4 – Average months =  time after the first drawings + time after the last drawings/2

= (8 +0/2) = 8/2 = 4 MONTHS


Jojo’s Interest on Drawings = 36,000 ∗ 12/100 ∗ 4/12 = 1440

Yoyo’s Interest on Drawings = 54,000 ∗ 12/100 ∗ 4/12 = 2160

Cbse sample paper 2015 question for this 
Kanika and Gautam are partners doing a dry cleaning business in Lucknow, sharing profits in the ratio 2:1 with capitals Rs.5,00,000 and Rs.4,00,000 respectively. Kanika withdrew the following amounts during the year to pay the hostel expenses of her son.
1st April 10,000
1st June 9,000
1st Nov. 14,000
1st Dec. 5,000
Gautam withdrew Rs.15,000 on the first day of April, July, October and January to pay rent for the accommodation of his family. He also paid Rs.20,000 per month as rent for the office of partnership which was in a nearby shopping complex. Calculate interest on Drawings.

                                                                Jugad
Interest on Drawings & Cases | Crash Course of Accountancy - Class 12 - Commerce

The document Interest on Drawings & Cases | Crash Course of Accountancy - Class 12 - Commerce is a part of the Commerce Course Crash Course of Accountancy - Class 12.
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FAQs on Interest on Drawings & Cases - Crash Course of Accountancy - Class 12 - Commerce

1. What is the concept of interest on drawings in commerce?
Ans. Interest on drawings refers to the interest charged on the money withdrawn by a partner from the partnership business for personal use. It is a way to compensate the partnership for the loss of capital and potential earnings that could have been generated from the withdrawn amount.
2. How is interest on drawings calculated in commerce?
Ans. The calculation of interest on drawings in commerce is typically based on the agreed-upon interest rate and the duration for which the amount was withdrawn. It is calculated by multiplying the amount of the drawings by the interest rate and the time period in years.
3. What is the purpose of charging interest on drawings in commerce?
Ans. The purpose of charging interest on drawings in commerce is to discourage partners from excessively withdrawing funds from the partnership for personal use. It helps in maintaining the financial stability of the partnership by compensating for the loss of capital and potential earnings, ensuring fairness among partners.
4. How does the charging of interest on drawings affect the partner's capital account in commerce?
Ans. The charging of interest on drawings reduces the partner's capital account in commerce. The interest charged is debited to the partner's capital account, resulting in a decrease in their share of the partnership's capital. This reduction reflects the partner's liability towards the partnership for the amount withdrawn.
5. Are there any legal requirements or limitations for charging interest on drawings in commerce?
Ans. The legal requirements and limitations for charging interest on drawings in commerce may vary depending on the jurisdiction and the partnership agreement. However, it is generally recommended to have a written partnership agreement stating the interest rate, calculation method, and any limitations on the amount and frequency of drawings to ensure transparency and avoid disputes.
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