1 markMCQSection A

Tula, Ram and Madhvi were partners in a firm. The partnership deed provided for interest on partners drawings @ 12% p.a. The firm closes its books on 31st March every year. Starting from 31st December, 2025 Madhvi withdrew Rs. 40,000 at the end of every month for her personal use. Interest on Madhvi's drawings will be :

Q: Tula, Ram and Madhvi were partners in a firm. The partnership deed provided for interest on partners drawings @ 12% p.a. The firm closes its books on 31st March every year. Starting from 31st December, 2025 Madhvi withdrew Rs. 40,000 at the end of every month for her personal use. Interest on Madhvi's drawings will be :

**Correct option: (C) Rs. 2,400.** Madhvi withdrew Rs. 40,000 at the end of every month for 4 months (31 Dec 2025, 31 Jan 2026, 28 Feb 2026, 31 Mar 2026), up to the books' closing date of 31st March. Using the product method, interest = $\Sigma(\text{Amount} \times \text{Rate} \times \text{Months remaining} \div 12)$: | Date of withdrawal | Amount (Rs.) | Months left to 31 Mar | Interest @ 12% p.a. (Rs.) | |---|---|---|---| | 31 Dec 2025 | 40,000 | 3 | 1,200 | | 31 Jan 2026 | 40,000 | 2 | 800 | | 28 Feb 2026 | 40,000 | 1 | 400 | | 31 Mar 2026 | 40,000 | 0 | 0 | | **Total** | **1,60,000** | | **2,400** | Total Interest on Drawings = **Rs. 2,400**.

Accounting for Partnership: Basic Concepts

Interest on Partner's Drawings — Monthly Withdrawals (Product Method)

Options

(A)Rs. 19,200

(B)Rs. 4,800

(C)Rs. 2,400

(D)Rs. 1,600

Official Answer

Correct option: (C) Rs. 2,400.

Madhvi withdrew Rs. 40,000 at the end of every month for 4 months (31 Dec 2025, 31 Jan 2026, 28 Feb 2026, 31 Mar 2026), up to the books' closing date of 31st March.

Using the product method, interest = $\Sigma(\text{Amount} \times \text{Rate} \times \text{Months remaining} \div 12)$ :

Date of withdrawal	Amount (Rs.)	Months left to 31 Mar	Interest @ 12% p.a. (Rs.)
31 Dec 2025	40,000	3	1,200
31 Jan 2026	40,000	2	800
28 Feb 2026	40,000	1	400
31 Mar 2026	40,000	0	0
Total	1,60,000		2,400

Total Interest on Drawings = Rs. 2,400.

interest on drawingsproduct methodaverage period methodpartner's drawingsmonthly withdrawalscharge against profit

Marking Scheme

11 mark: for correctly computing total interest as Rs. 2,400 using the product method over the 4 relevant months $(3+2+1+0)$ .

Hint

Only 4 monthly withdrawals occur (Dec to Mar); compute interest for each based on months remaining till 31st March, not using a 12-month average shortcut.

Quick Oral Answer

Since Madhvi's four monthly withdrawals of Rs. 40,000 each run from December to March, interest is computed month-by-month based on time remaining, totalling 6 months' worth of interest at 12%, i.e., Rs. 2,400.

Analysis & Explanation

Concept: When a fixed amount is withdrawn regularly but the withdrawals do not cover a full, standard 12-month period from a fixed starting point (here, only 4 months: December to March), interest cannot be computed using the simple 'average period' shortcut formula meant for a full year; instead, it is safest to compute interest for each withdrawal individually based on the exact number of months it remains outstanding till the books close (31st March).

Working (product/individual method):

Since withdrawal is at the END of each month, the amount withdrawn on 31 Dec has 3 months left (Jan, Feb, Mar) before books close on 31 Mar.
Similarly, 2 months for the 31 Jan withdrawal, 1 month for the 28 Feb withdrawal, and 0 months for the 31 Mar withdrawal (withdrawn on the very last day, so no interest accrues).
$\text{Interest} = 40,000 \times 12\% \times (3+2+1+0)/12 = 40,000 \times 12\% \times 6/12 = \text{Rs. }2,400$ .

Why other options are wrong:

(A) Rs. 19,200 results from wrongly treating the drawings as if made over a full year at a much larger average period.
(B) Rs. 4,800 results from wrongly applying the average-of-6-months shortcut meant for 12 equal end-of-month withdrawals across a full year, which does not apply here since there are only 4 withdrawals.
(D) Rs. 1,600 undercounts the total months (e.g., omitting one withdrawal's interest period).

Exam tip: Whenever the withdrawal period does NOT span a standard interval matching a known shortcut (like 'end of every month for 12 months'), compute interest withdrawal-by-withdrawal using months remaining to the book-closing date.

Common Mistakes

1Applying the standard 'average 6 months' shortcut meant for 12 equal monthly withdrawals over a full year to this 4-month withdrawal pattern.
2Including an extra withdrawal or missing one — since withdrawals start only from 31st December, there are exactly 4 withdrawals (Dec, Jan, Feb, Mar), not 12.
3Forgetting that a withdrawal made on 31st March (the very last day/closing date) earns zero interest since no time remains before the books close.

Interesting Facts

The average period shortcut formulas (e.g., 6.5 months for beginning-of-month withdrawals over a year, 5.5 months for end-of-month) apply ONLY when withdrawals are equal AND made at regular intervals covering a full year — any deviation requires the product/individual method.

Interest on drawings is credited to the Profit and Loss Appropriation Account, the reverse treatment of interest on capital, since it compensates the firm for the partner's early withdrawal of funds.

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Frequently Asked Questions

Why can't the standard average-period shortcut be used here?

The shortcut formulas (like 6.5 or 5.5 months average) assume equal withdrawals at regular intervals covering a FULL 12-month accounting year. Here, Madhvi withdraws for only 4 months (December to March), so the individual/product method must be used, computing interest separately for each withdrawal based on the exact months remaining.

Does the 31st March withdrawal attract any interest?

No. Since the firm's books close on 31st March and the withdrawal happens on that very date, zero months remain for interest to accrue on that particular withdrawal.