Note: Interest on drawings is charged only if the partnership deed provides for it.
1. Simple Method (Exact Dates)
Formula: Amount × Rate × (Period / 12)
Example: Partner A withdrew ₹10,000 on 1 July. Rate = 10% p.a. Year ends 31 December.
Period = 6 months (July to December).
Interest = ₹10,000 × 10% × 6/12 = ₹500
2. Product Method (Multiple Drawings with Different Dates)
Formula: [Sum of (Amount × Months to year‑end)] × Rate / 12
Example: Partner B withdrew:
- ₹5,000 on 1 May (months to year‑end: 8)
- ₹8,000 on 1 August (months: 5)
- ₹4,000 on 1 November (months: 2)
Rate = 10% p.a. Year ends 31 December.
Products:
₹5,000 × 8 = 40,000
₹8,000 × 5 = 40,000
₹4,000 × 2 = 8,000
Total Product = 88,000
Interest = (88,000 × 10/100) / 12 = 8,800 / 12 = ₹733.33
3. Average Period Method (Fixed Amounts at Regular Intervals)
Formula: Total Drawings × Rate × (Average Period / 12)
Monthly Drawings (Fixed Amount)
Assume ₹2,000 drawn each month. Total yearly drawings = ₹24,000. Rate = 10%.
- Beginning of each month: Average period = 6.5 months
Interest = ₹24,000 × 10% × 6.5/12 = ₹1,300 - Middle of each month: Average period = 6 months
Interest = ₹24,000 × 10% × 6/12 = ₹1,200 - End of each month: Average period = 5.5 months
Interest = ₹24,000 × 10% × 5.5/12 = ₹1,100
Quarterly Drawings (Fixed Amount)
Assume ₹6,000 drawn each quarter. Total yearly drawings = ₹24,000. Rate = 10%.
- Beginning of each quarter: Average period = 7.5 months
Interest = ₹24,000 × 10% × 7.5/12 = ₹1,500 - Middle of each quarter: Average period = 6 months
Interest = ₹24,000 × 10% × 6/12 = ₹1,200 - End of each quarter: Average period = 4.5 months
Interest = ₹24,000 × 10% × 4.5/12 = ₹900 (i.e., ₹24,000 × 10% × 4.5/12 = ₹900)
These examples cover all common situations for calculating interest on drawings.