Since Ram withdraws Rs. 3,000 per month at the beginning of each month, the money is used for varying periods throughout the year.
Total drawings for the year = Rs. 3,000 × 12 = Rs. 36,000
For drawings at the beginning of each month, the average period formula is:
Average Period = 2n+1 months, where n = number of months
Average Period = 212+1 = 6.5 months
Interest on drawings is calculated using:
Interest = Total Drawings × Rate × Time / 100
Since the time is in months, we convert the annual rate accordingly:
Interest = 12×10036,000×9×6.5
Interest = 1,2002,106,000
Interest = Rs. 1,755
Note: When drawings are made at the beginning of the month, we use 6.5 months as average period (not 5.5 months which is used when drawings are at the end of each month).