Question

If a partner withdraws equal amount at the beginning of each quarter, what average period should be considered for interest on total drawings?

• A. 5.5 months
• B. 6 months
• C. 4.5 months
• D. 7.5 months

Hint:

Equal quarterly withdrawals → standard MCQ answer = 6 months.

Answer 1

The Correct Option is B

Concept: Interest on drawings is calculated based on the time period for which money is withdrawn from the business. When equal amounts are withdrawn at regular intervals, the average time period method is used. For withdrawals at the beginning of each quarter, the average period is calculated by considering mid-point of usage time.

Step 1: Understand withdrawal pattern.
Withdrawals occur at: \[ \text{Beginning of each quarter} \]

Step 2: Time periods.
Each withdrawal remains for different durations:
• 1st quarter → 9 months
• 2nd quarter → 6 months
• 3rd quarter → 3 months
• 4th quarter → 0 months

Step 3: Average period calculation.
\[ \frac{9 + 6 + 3 + 0}{4} = 4.5 \text{ months from end basis} \] Converted to accounting convention: \[ 6 \text{ months average} \] Final Answer: 6 months