When the date of drawing is not specified, the assumption is that the partner has withdrawn money uniformly throughout the year.
In such cases, interest on drawings is calculated for an average period of 6 months (half the financial year).
This convention exists because:
- If drawings are made evenly throughout the year, some amount is withdrawn at the beginning (outstanding for 12 months) and some at the end (outstanding for a very short period)
- On average, the money withdrawn remains outside the business for approximately 6 months
Formula for Interest on Drawings:
When date is not specified = Total Drawings×Rate×126
For example, if a partner withdraws ₹1,20,000 during the year (date not specified) and interest is charged @10% p.a.:
Interest on Drawings = 1,20,000×10010×126=₹6,000
The correct answer is Option 4: 6 months.