Interest on drawings( practice paper)
(Basics of Partnership)
Topic : Interest on Drawings
1. State the purpose of allowing interest on drawings of a partner. [1]
2. What is the difference between drawings against profit and drawings against capital? [1]
3. Where would you record the interest on drawings when capitals are fixed? [1]
4. X, Y and Z are partners sharing profits equally. They have decided that no interest on drawings is to be charged to any partner. But after one year ‘Z’ wants that interest on drawings should be charged to every partner. State how ‘Z’ can do this. [1]
5. Calculate interest on drawings of Mr. Vinod @ 8% p.a. for the year ended 31st March, 2014 in each of the following cases:
Case 1: If he withdrew Rs.2,000 at the beginning of each year.
Case 2: If he withdrew Rs.2,000 during the middle of each month.
Case 3: If he withdrew Rs.2,000 at the end of each month. [3]
6. Calculate interest on drawings of Mr. Vinod @ 10% p.a. for the year ended 31st March, 2014 in each of the following cases:
Case 1: If he withdrew Rs.1,000 at the beginning of each Quarter.
Case 2: If he withdrew Rs.1,000 during the middle of each Quarter.
Case 3: If he withdrew Rs.1,000 at the end of each Quarter. (3)
7. Find out interest on drawing of Mr. Vinod, if he withdrew Rs.2,000 in the beginning of
every month for six months ended 31st March 2014. Rate of interest on drawings is 6% p.a. [3]
8. Find out interest on drawing of Mr. Vinod, if he withdrew Rs.2,000 at the end of every month for six months ended 31st March 2014. Rate of interest on drawings is 6% p.a. [3]
9. Find out interest on drawing of Mr. Vinod, if he withdrew Rs.2,000 in the middle of every month for six months ended 31st March 2014. Rate of interest on drawings is 6% p.a. (3)
10. Drawing of Mr. Vinod during the year was Rs.10,000. Calculate interest on drawings @10% p.a. for the year ended 31st March 2014. (3)
11. Drawings of Mr. Vinod during the year was Rs.20,000. Calculate interest on drawings @10% irrespective of time period for the year ended 31st March 2014. (3)
12. Calculate interest on drawing of Mr.Vinod @ 10% p.a. for the year ended 31st March 2014 in each of the following cases:
(a) If he withdrew Rs.500 per month during the year.
(b) If he withdrew 2,000 in each quarter. (4)
13. Vinod is a partner in a firm. He withdrew the following amounts during the year 2013:
January 31 Rs.6,000
March 31 Rs.4,000
June 30 Rs.8,000
September 30 Rs.3,000
October 31 Rs.5,000
The interest on drawings is to be charged @6% p.a. Assuming the accounting year closes on December 31 each year, calculate interest on drawings to be debited to Mr. Vinod. (3)
Accountancy Challenge
Challenge : 1
Case 1: 4,000 withdrawn in the beginning of each month for 9 months only, ending on 30th September
2013 @ 10% p.a.
Case 2: 4,000 withdrawn in the Middle of each month for 9 months only, ending on 30th September
2013 @ 10% p.a.
Case 3: 4,000 withdrawn at the end of each month for 9 months only, ending on 30th September 2013
@ 10% p.a
Challenge : 2
Case 1: Rs.4,000 withdrawn on the 1st day of every month for 6 months @10% per annum ending on
30th June 2013.
Case 2: Rs.4,000 withdrawn in the middle of every month for 6 months @10% per annum ending on
30th June 2013.
Case 3: Rs.4,000 withdrawn at the end of every month for 6 months @10% per annum ending on 30th
June 2013.
ANSWERS
1. The main purpose of charging interest on drawings is to prevent one partner getting an advantage
over the other. In case the profit sharing ratio is different from drawings ratio, partner who
withdraws more will pay more interest and partner who withdrew less will pay less interest.
2. Drawings against capital are considered for calculating interest on capital. Drawings against
profits are not considered for calculating interest on capital.
3. When capital is fixed, interest on drawings will be debited to the Current Account of partner.
4. Z can do this only with consent of all partners i.e. by making changes in the partnership deed.
5. Case 1: Rs.1,040; Case 2: Rs.960; Case 3: 880
6. Case 1: Rs.250; Case 2: Rs.200; Case 3: 150
7. 12,000 x 6/100 x 3.5/12 = 210
8. 12,000 x 6/100 x 2.5/12 = 150
9. 12,000 x 6/100 x 3/12 = 180
10. Interest on Mr. Vinod’s Drawing Rs.500
11. Interest on Mr. Vinod’s Drawing Rs.2,000
12. (a) Rs.300 and (b) Rs.400
13. Interest on Mr. Vinod’s Drawing Rs.845
14. Interest on Mr. Vinod’s Drawings Rs.3,840
Challenge-1 : Case 1: Rs.1,500 Case 2 : 1,350 Case 3: Rs.1,200
Challenge-2 : Case 1: Rs.700 Case 2 : 600 Case 3: Rs.500
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