Question

If a partner withdraws equal amount at beginning of each quarter, then ______ are to be considered for interest on total drawings.

• A. \(5.5\) months
• B. \(6\) months
• C. \(4.5\) months
• D. \(7.5\) months

Hint:

For partnership drawings:
• Beginning of every month \(\rightarrow 6.5\) months
• Middle of every month \(\rightarrow 6\) months
• End of every month \(\rightarrow 5.5\) months
• Beginning of every quarter \(\rightarrow 7.5\) months
• Middle of every quarter \(\rightarrow 6\) months
• End of every quarter \(\rightarrow 4.5\) months These standard average periods are very important for accounting MCQs.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
When equal amounts are withdrawn periodically, the "Average Period" method is used to calculate interest on total drawings.
Key Formula or Approach:
The formula for Average Period is:
\[ \text{Average Period} = \frac{\text{Months left after first drawing} + \text{Months left after last drawing}}{2} \]
Step 2: Detailed Explanation:
Assuming a financial year of 12 months:
1. The first drawing is at the beginning of the first quarter (e.g., April 1st). Months left = 12.
2. The last drawing is at the beginning of the last quarter (e.g., January 1st). Months left = 3.
Applying the formula:
\[ \text{Average Period} = \frac{12 + 3}{2} = \frac{15}{2} = 7.5 \text{ months} \]
Step 3: Final Answer:
Interest on total drawings will be calculated for 7.5 months.