- 16-Jul-2022

The reason being due to drawings, **the amount of capital (so invested by the partner) reduces**. This implies that the firm has less amount of capital than earlier.

Similarly Interest can be calculated by following formulas: Half yearly Drawings for year when: **Drawings are made in the begnning of each period (halfyear) interest on drawing = Amount x Rate/100 x 9/12**. Drawings are made in the middle of each period (half year) interes on drawing = Amount x Rate/100 x 6/12.

**How to calculate interest rate**

- Step 1: To calculate your interest rate, you need to know the interest formula I/Pt = r to get your rate.
- I = Interest amount paid in a specific time period (month, year etc.)
- P = Principle amount (the money before interest)
- t = Time period involved.
- r = Interest rate in decimal.

Interest on drawings will be debited to capital account. Interest on drawing is **an income for the firm and is payable by the partners to the firm hence, is deducted/debited**. Interest is charge on the money/goods taken by the partners for their personal use during the year.

**Amount withdrawn by the owner for his personal use is called as drawings**. When interest on capital is allowed, then interest on drawings is charged from the owner. Interest on drawings is an income for the business and will reduce the capital of the owner.

The net loss is divided **according to each partner's contribution percentage**, according to Henssler Financial. For example, Partner A gets 50 percent of the profits and losses, Partner B gets 30 percent and Partner C gets 20 percent of the partnership's profits and losses. The partnership net loss is $80,000.

Answer. Interest on capital is an expense to the firm and is debited to the **profit and loss appropriation account**. Interest is payable to the partners and hence, the partner's capital account is credited with the amount of interest. In case of loss, no interest will be allowed on capital.

Answer: Drawings are made in the begnning of each period (halfyear) interest on drawing = **Amount x Rate/100 x 9/12**. Drawings are made in the middle of each period (half year) interes on drawing = Amount x Rate/100 x 6/12.

The reason being due to drawings, **the amount of capital (so invested by the partner) reduces**. This implies that the firm has less amount of capital than earlier.

**Interest On Drawings**

- When date of Drawings is not given. Interest on Drawing = Total Drawings x Rate/100 x 6/12. Note : Interest is calculated for a period of 6 months.
- When date of Drawings is given. Interest on Drawing = Total Drawings x Rate/100 x Time Left after drawings/12.

**Interest on drawings= Total of Products × Rate/100 × 1/12**

When equal amounts are withdrawn at regular/equal interval of time, interest on drawing can be calculated on the total of the amount drawn, for the average of the period applicable to the first and last instalment.

Interest on capital = **Amount of capital x Rate of interest per annum x Period of interest**.

As per the partnership deed, interest on drawings is charged at **12% p.a.** During the year ended 31st December 2018 he drew as follows: Calculate the amount of interest on drawings. Rajan is a partner who withdrew ₹ 30,000 during the year 2018. Interest on drawings is charged at 10% per annum.

Example- If a partner withdraws Rs 1,000 in the beginning of every month and the rate of interest is 10% p.a., then the interest on drawings amount to Rs 650. Example- If a partner withdraws Rs 1,000 at the end of each month and rate of interest is 10% p.a., then the interest on drawings amount to **Rs 550**.

When the Interest on drawings is charged to partners, **Interest on Drawing Account is credited, and Partner's Capital Account is debited**. It is called as an adjusting entry. Adjusting entries are usually done at the end of the year for incomes and expenses.

When the Interest on drawings is charged to partners, Interest on Drawing Account is credited, and **Partner's Capital Account is debited**.

Charging interest on drawings is a means of discouraging partners from withdrawing excessive amounts from the business. From this, it follows that interest on drawings is **a debit entry in the partners' current accounts and a credit entry in the appropriation account**.

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