Question

If a partner withdraws equal amount at the beginning of each quarter, what average period should be considered for interest on total drawings?

• A. 5.5 months
• B. 6 months
• C. 4.5 months
• D. 7.5 months

Hint:

Equal quarterly withdrawals → standard MCQ answer = 6 months.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
Interest on drawings is calculated based on an average period when equal amounts are withdrawn at regular intervals.
Step 2: Key Formula or Approach:
\[ \text{Average Period} = \frac{\text{Time left after 1st drawing} + \text{Time left after last drawing}}{2} \]
Step 3: Detailed Explanation:
- A year has 4 quarters. If a partner withdraws at the beginning of each quarter:
1st withdrawal is on April 1st (12 months left).
Last withdrawal is on January 1st (3 months left).
- Applying the formula:
\[ \text{Average Period} = \frac{12 + 3}{2} = \frac{15}{2} = 7.5 \text{ months} \]

Step 4: Final Answer:
The average period is 7.5 months (D).