Question

Mohan, a partner, withdrew ₹80,000 from the business for his personal use during the year ended 31st March, 2024. Interest on drawings was to be charged @ 12% per annum. Interest on Mohan’s drawings will be:

• A. ₹9,600
• B. ₹4,800
• C. ₹800
• D. ₹1,600

Hint:

If drawings are made regularly during the year, always charge interest for 6 months unless told otherwise.

Answer 1

The Correct Option is B

The total amount withdrawn by Mohan during the year = ₹80,000
The rate of interest to be charged on drawings = 12% per annum
Unless specified otherwise, it is assumed that drawings are made evenly throughout the year.
When drawings are made evenly, interest is charged for an average period of 6 months.
Now, using the formula:
Interest on Drawings = Amount $\times$ Rate $\times$ Time
$\Rightarrow$ Interest = 80,000 $\times$ $\dfrac{12}{100}$ $\times$ $\dfrac{6}{12}$
$\Rightarrow$ Interest = 80,000 $\times$ 0.12 $\times$ 0.5
$\Rightarrow$ Interest = ₹4,800
Thus, interest of ₹4,800 will be charged from Mohan for his drawings.