When should we calculate interest on drawings for six months????
When it is given in the question that calculate interest on drawings i) @ 6% what to do?
ii) @ 6% p.a. what to do?
In the following situations, the interest on drawings should be calculated for six months.
i) When a fixed amount of drawings is withdrawn in the middle of every month.
ii) When the date of drawings is not mentioned in the question, then the interest is charged on the average basis and the period of drawings is taken as 6 months.
If in the question it is given that interest on drawings is:
i) @ 6% (only)- In this case, as the ‘per annum’ condition is not mentioned with the rate of interest, so we need to calculate the interest on drawings without considering the time factor.
ii) @ 6% p.a.- In this case, as the per annum is mentioned with the rate of interest, so the interest on drawings is to be calculated on the average basis and the period of drawings will be taken as 6 months. That is, in this case, the interest is calculated by considering the time factor.
Example- Mohina withdrew Rs 50,000 from her business. Calculate the interest on drawings, if the rate of interest is:
(i) 10% p.a.
(i) When the rate of Interest is 10% p.a.
Amount of drawings = Rs 50,000
As the date of drawings is not mentioned and the interest rate is 10% p.a. so the interest on drawings is to be calculated for the period of 6 months.
(ii) When rate of Interest is 10%
As the rate of interest is mentioned without the condition of ‘per annum’, so the interest on drawings is to be calculated without considering the time factor.
we should calculate intrest on drawings for 6 months only when it is given that drawings are made in the middle of the month or no information is given about the drawings period.
1) if only 6% is given the we should ignore the time factor.
2) if 6% p.a os given then calculate with the time factor.