The partnership agreement of X and Y provides that interest at 5% per annum is to be charged on partners' drawings.During year ended 31 December 2011 drawings by X were:
$
1 February 2011 2400
1 June 2011 4800
1 August 2011 960
What is the total amount of interest on drawings chargeable to X's current account for the year?

Question

Quizplus · Accepted Answer

To calculate the interest on X's drawings, we need to first find the average drawings for the year.

Average drawings = (2400+4800+960)/3 = 2720

Now we can calculate the interest by multiplying the average drawings by the interest rate:

Interest on drawings = 2720 x 5% = 136

However, this interest is only chargeable on the drawings made during the year, which are the ones made on 1 June and 1 August. The February 1 drawing is not included as it was made before the start of the year.

Total amount of interest chargeable = 4800 x 5% + 960 x 5% = $270

The Partnership Agreement of X and Y Provides That Interest