Sudha, a partner withdrew ₹ 12,000 on 31st October, 2023 for her personal use. Interest on drawings is charged

Question

Q. Sudha, a partner withdrew ₹ 12,000 on 31st October, 2023 for her personal use. Interest on drawings is charged @ 6% p.a. The interest on Sudha’s drawings for the year ended 31st March, 2024 will be : (A) ₹ 300 (B) ₹ 30 (C) ₹ 3,000 (D) ₹ 150

(OR)

The partnership deed should be prepared as per the provisions of which of the following Acts ? (A) The Companies Act, 2013 (B) The Indian Partnership Act, 1932 (C) The Indian Stamp Act (D) The Cooperative Societies Act

CBSECBSE Class XII Board 2025MCQ· 1mImportance★★★★★

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Part (a)Concept understanding — Interest on Drawings

Interest on Drawings – A First Look

Think of a partnership firm as a shared pool of money. Each partner owns a part of that pool, but the firm needs that money to run its business. When a partner takes money out for personal use — buying a car, paying school fees, a holiday — that money is no longer available to the firm. The firm could have earned a return on that money if it had stayed in the business. So the partner is, in effect, borrowing from the firm.

Interest on Drawings is the charge the firm levies on a partner for that personal withdrawal. It compensates the firm for the loss of use of that capital.

The precise meaning

Drawings are any amounts or goods taken by a partner from the firm for personal use. Interest on Drawings is the interest charged by the firm on those drawings. It is an income for the firm and an expense for the partner.

The logic is simple: if the partner had left that money in the firm, the firm could have invested it and earned a return. By taking it out, the partner reduces the firm's capital base. Interest on Drawings restores some of that lost earning potential.

Why does it matter?

In a partnership, profits are shared according to an agreed ratio. But if one partner draws heavily and another draws little, the heavy drawer has effectively used more of the firm's resources. Without interest on drawings, that partner would unfairly benefit — the firm's profit would be lower because less capital was available, and all partners would share that reduced profit equally. Interest on drawings corrects this inequity.

It also encourages partners to withdraw only what they genuinely need, keeping more capital inside the firm for growth.

The accounting treatment

Interest on Drawings is recorded in two steps:

When interest is charged – The firm recognises it as income. The journal entry is:

Partner’s Capital Account (or Current Account) … Dr

To Interest on Drawings Account

The partner’s capital (or current) account is debited because the partner owes this amount to the firm. Interest on Drawings is credited because it is income for the firm.
At the end of the year – The Interest on Drawings Account is closed by transferring its balance to the Profit and Loss Appropriation Account:

Interest on Drawings Account … Dr

To Profit and Loss Appropriation Account

This increases the firm’s profit available for distribution.

Where does it appear in the final accounts?

Interest on Drawings appears in two places:

On the credit side of the Profit and Loss Appropriation Account – as an addition to the net profit.
On the debit side of the Partner’s Capital Account (or Current Account, if the firm maintains separate current accounts).

The NCERT textbook shows the following format for the Profit and Loss Appropriation Account:

Particulars	Amount (₹)	Particulars	Amount (₹)
To Net Profit (transferred)	xxx	By Net Profit (as per P&L)	xxx
To Interest on Capital	xxx	By Interest on Drawings	xxx
To Salary to Partner	xxx
To Commission to Partner	xxx
To Profit transferred to:
– A’s Capital A/c	xxx
– B’s Capital A/c	xxx
Total	xxx	Total	xxx

And in the Partner’s Capital Account (or Current Account), interest on drawings appears on the debit side:

Particulars	Amount (₹)	Particulars	Amount (₹)
To Interest on Drawings	xxx	By Balance b/d	xxx
To Drawings	xxx	By Interest on Capital	xxx

Part (b)Concept understanding — Partnership Deed Definition

Let’s start with something you already know. Suppose you and two friends decide to start a small business together — say, a tiffin service. You each bring in some money, you decide who will cook, who will deliver, and who will keep accounts. But after a month, one friend says, “I should get extra pay because I do all the cooking.” Another says, “I put in more money, so I should get more profit.” Without a written agreement, you’ll argue endlessly. That’s exactly why a Partnership Deed exists.

Everyday Intuition

A partnership deed is simply the rulebook that partners agree to follow. It’s like the constitution of the partnership. It answers questions like: How much capital did each partner bring? How will profits be shared? Will partners get a salary or interest on their capital? What happens if a partner wants to leave? Without this rulebook, the law (the Indian Partnership Act, 1932) steps in with default rules — but those may not suit your business.

Precise Meaning (as per NCERT Class-12 Accountancy)

A Partnership Deed is a written document that contains the terms and conditions of the partnership. It is signed by all partners and is legally binding. While the law does not compel a written deed (an oral agreement is also valid), a written deed is strongly recommended to avoid disputes.

The deed typically includes:

Name and address of the firm and partners
Nature of business
Capital contribution by each partner
Profit-sharing ratio
Interest on capital, drawings, and loans
Salary or commission to partners
Admission, retirement, or death of a partner
Method of valuing goodwill
Settlement of accounts on dissolution

Important

If no partnership deed exists, the Indian Partnership Act, 1932 applies default rules: profits/losses shared equally, no interest on capital, no salary to partners, interest on drawings at 6% p.a., and interest on partner’s loan at 6% p.a.

Why It Matters in Accounting

The partnership deed is the source document for all accounting entries related to partners. Every adjustment — interest on capital, salary, commission, profit share — is based on what the deed says. If the deed is silent, the Act’s default rules apply.

For example:

If the deed says “Interest on capital @ 10% p.a.”, you must calculate and record it.
If the deed says “Partner A gets a salary of ₹5,000 per month”, you must debit the Profit and Loss Appropriation Account.

Accounting Treatment

All items related to partners (interest on capital, salary, commission, profit share) are recorded in the Profit and Loss Appropriation Account (a special account that shows how net profit is distributed among partners). The final amounts are then transferred to the Partners’ Capital Accounts (or Current Accounts, if the firm uses fixed capital method).

Key Rules (NCERT-based):

Item	Debit	Credit
Interest on Capital	Profit & Loss Appropriation A/c	Partner’s Capital/Current A/c
Partner’s Salary	Profit & Loss Appropriation A/c	Partner’s Capital/Current A/c
Partner’s Commission	Profit & Loss Appropriation A/c	Partner’s Capital/Current A/c
Interest on Drawings	Partner’s Capital/Current A/c	Profit & Loss Appropriation A/c
Share of Profit	Profit & Loss Appropriation A/c	Partner’s Capital/Current A/c
Share of Loss	Partner’s Capital/Current A/c	Profit & Loss Appropriation A/c

Note

In the fixed capital method, partners have two accounts: a fixed Capital Account (unchanged except for additional capital or permanent withdrawal) and a Current Account (for all other transactions like salary, interest, drawings, profit share). In the fluctuating capital method, only one Capital Account is used, and all items are recorded there.

Format of Profit and Loss Appropriation Account (as per NCERT)

This is the proforma you’ll see in your textbook. It shows how net profit is appropriated (distributed) according to the partnership deed.

Profit and Loss Appropriation Account …

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Part (a): Interest on drawings for 5 months = 12,000 × 6% × 5/12 = ₹300 (A).

Part (b): A partnership deed is prepared under (B) The Indian Partnership Act, 1932.

Part (a)

Interest on drawings is charged for the time the withdrawn money stayed out of the firm — counted from the date of withdrawal to the year-end.

Amount withdrawn = ₹12,000
Date of withdrawal = 31 Oct 2023 → interest runs from 1 Nov 2023
Year-end = 31 Mar 2024 → period = 5 months
Rate = 6% p.a.

Interest = 12,000 × 6/100 × 5/12 = 720 × 5/12 = ₹300 …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

Showing the 12 most recent of 128 on this concept.

CBSE 2026Set 67/3/11 markMCQ
$Q. (a) Persons who have entered into partnership with one another are collectively called : (A) Firm (B) Partnership (C) Partners (D) Partners' firm$
(OR)
$(b) In the absence of partnership deed, partners are entitled to : (A) Interest on Capital (B) Share of profits/losses in the ratio of their capitals (C) Interest @ 6% p.a. on loans/advances by them to the firm (D) Remuneration for the firm's work$
›Reveal solutionSolution
Part (a): (A) Firm — the collective name for the partners. Part (b): (C) Interest @ 6% p.a. on loans/advances — the only entitlement of the listed options when there is no deed.

Part (a)

Section 4 of the Indian Partnership Act, 1932 defines the terms precisely:

Partnership — the relation between persons who agree to share the profits of a business.

Partners — the persons who have entered into partnership, individually.

Firm — those persons collectively.

Firm name — the name under which the business is carried on.

The question asks for the collective name of the persons → Firm. …
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CBSE 2026Set 67/4/11 markMCQ
$Q. (a) Reena and Teena were partners in a firm sharing profits and losses in the ratio of 2 : 1. Teena withdrew ₹ 20,000 at the beginning of each month during the year ended 31st March, 2025. Interest on drawings was to be charged @ 6% per annum. Interest on Teena's drawings for the year ended 31st March, 2025 will be : (A) ₹ 7,800 (B) ₹ 7,200 (C) ₹ 9,600 (D) ₹ 6,600$
(OR)
$(b) Rohan and Sohan were partners in a firm sharing profits and losses equally. Rohan withdrew ₹ 15,000 at the beginning of each quarter during the year ended 31st March, 2025. Interest on Rohan's drawings will be calculated for an average period of : (A) 6 months (B) 4½ months (C) 7½ months (D) 6½ months$
›Reveal solutionSolution
Part (a): Interest on Teena's drawings = Rs.7,800 -> (A). Part (b): Average period for beginning-of-quarter drawings = 7.5 months -> (C).

Part (a)

Equal amount at the beginning of every month => average period 6.5 months.

Total drawings = 20,000 x 12 = Rs.2,40,000 …
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CBSE 2026Set 67/5/11 markMCQ
$Q. Arora and Gurmeet were partners in a firm sharing profits and losses in the ratio of 3 : 2. Starting from 1st October, 2024 Arora withdrew ₹ 30,000 at the beginning of each quarter for his personal use. Interest on drawings was to be charged @ 12% per annum. Interest on Arora’s drawings for the year ended 31st March, 2025 was : (A) ₹ 1,800 (B) ₹ 2,700 (C) ₹ 450 (D) ₹ 3,600$
›Reveal solutionSolution
Interest on Arora's drawings for the year ended 31st March, 2025 is ₹2,700 (Option B).

Concept: Interest on Drawings

When a partner withdraws money from the firm for personal use, the firm loses the opportunity to earn on that capital. To compensate, interest on drawings is charged to the partner's capital account and credited to the Profit & Loss Appropriation Account (it is an income for the firm).

The accounting treatment follows the rule:

Partner's Capital/Current A/c Dr. (reduces the partner's claim)

To Interest on Drawings A/c (or directly to P&L Appropriation A/c)

When drawings are made at regular intervals (monthly, quarterly, etc.), we use the average period formula to calculate interest, rather than computing interest on each withdrawal separately.

Understanding the Time Period

Arora withdraws ₹30,000 at the beginning of each quarter starting 1st October, 2024 until the year-end 31st March, 2025. This financial year runs for 6 months (October 2024 to March 2025).

The quarters in this period are:

1st October, 2024 – withdrawal for 6 months (Oct to Mar)

1st January, 2025 – withdrawal for 3 months (Jan to Mar)

So only two withdrawals occur during the year.

For equal periodic withdrawals, the average period formula is:
$\text{Average Period} = \frac{\text{Total time period} + \text{Time of last withdrawal}}{2}$
Here:

Total time period = 6 months (from first withdrawal on 1 Oct to year-end 31 Mar)

Time of last withdrawal = 3 months (from 1 Jan to 31 Mar)

$\text{Average Period} = \frac{6 + 3}{2} = \frac{9}{2} = 4.5 \text{ months}$
Tip

When drawings are made at the beginning of each period, the average period is calculated from the first withdrawal date to year-end, then averaged with the last withdrawal period. This accounts for the fact that early withdrawals remain outside the firm longer.

Solution

Working Note 1: Calculation of Interest on Drawings

Total drawings by Arora = ₹30,000 × 2 = ₹60,000

Interest on drawings:

$\text{Interest} = \text{Total Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Average Period}}{12}$ …
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CBSE 2026Set 67/5/11 markMCQ
$Q. Alok, Sarah and Aditya were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st January, 2025 Alok advanced a loan of ₹ 2,00,000 to the firm. In the absence of a partnership agreement, the amount of interest on loan due to Alok on 31st March, 2025 will be : (A) ₹ 20,000 (B) ₹ 12,000 (C) ₹ 3,000 (D) ₹ 5,000$
›Reveal solutionSolution
In the absence of a partnership deed, interest on a partner's loan is payable at 6% p.a. under Section 13(d) of the Indian Partnership Act, 1932. For a loan of Rs 2,00,000 advanced on 1st January 2025, interest for 3 months (Jan-Mar 2025) is Rs 3,000. The correct option is (C) Rs 3,000.

Concept and Accounting Treatment

The Indian Partnership Act, 1932, provides default rules when partners have not signed a partnership deed (or the deed is silent on a matter). For interest on a partner's loan to the firm, Section 13(d) of the Act states that the loan shall carry interest at 6% per annum. This is a charge against profits — the firm must pay it even if it makes a loss. It is an expense of the firm, not an appropriation of profit.

The journal entry to record this interest is:

Debit Interest on Partner's Loan A/c (expense)

Credit Alok's Loan A/c (liability)

The rate is fixed by law at 6% p.a. when no deed exists, and interest runs from the date the loan was advanced to the balance-sheet date (or repayment date, whichever is earlier).

Solution

Working Note 1: Time Period

Loan advanced: 1st January, 2025

Interest due up to: 31st March, 2025

Number of months: January, February, March = 3 months

Working Note 2: Interest Amount

Principal: Rs 2,00,000; Rate: 6% p.a.; Time: 3/12 year

Interest = 2,00,000 x 6/100 x 3/12 = Rs 3,000 …
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CBSE 2026Set MARCH1 markMCQ
$Q. In order to form a partnership, there should be atleast :$
(a) a) One person
(b) b) Two people
(c) c) Seven people
(d) d) Fifty people
›Reveal solutionSolution

A partnership requires a minimum of two persons, so the answer is (b) Two people.

Under the Indian Partnership Act, 1932, partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The word "persons" is plural, which means at least two are needed to enter into a partnership agreement.

…

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CBSE 2026Set MARCH1 mark
$Q. Partnership comes into existence as a result of __________ among the partners.$
›Reveal solutionSolution

Partnership comes into existence as a result of an agreement among the partners.

Under the Indian Partnership Act, 1932, partnership is the relation between persons who have agreed to share the profits of a business. It arises from a contract (agreement), not merely from status or birth. This agreement may be oral or written; when written, it is called the partnership deed.

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. If Asha makes drawings of ₹ 4,000 at the end of each months and interest on drawings is charged @ 8% per annum. The period for interest on drawings will be A) 7 1/2 months B) 5 1/2 months C) 6 1/2 months D) 4 1/2 months$
›Reveal solutionSolution

For equal monthly drawings made at the END of each month, the average period for interest on drawings is 5 1/2 months, so option (B) is correct. This is a standard RBSE Rajasthan / Class-12 Accountancy interest-on-drawings question.

When a partner withdraws an equal amount at the end of every month for a full year, the first drawing stays invested (outstanding) for 11 months and the last drawing for 0 months. Using the average-period method:

Average period = (period of first drawing + period of last drawing) / 2 = (11 + 0) / 2 = 5.5 months

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. Preparation of partnership agreement in written form is$
(a) Compulsory
(b) Voluntary
(c) Partly compulsory
(d) None of these
›Reveal solutionSolution

Writing the partnership agreement is voluntary - option (b).

A partnership arises from an agreement, which may be oral or in writing. The law does not compel the agreement to be in writing, so preparing a written partnership deed is voluntary. However, a written deed is strongly recommended bec …

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CBSE 2026Set ANNUAL1 markMCQ
$Q. When time of withdrawals is not mentioned, interest on drawing is charged for$
(a) 5½ months
(b) 6 months
(c) 6½ months
(d) 12 months
›Reveal solutionSolution

If the time of drawings is not given, interest is charged for 6 months - option (b).

When the amounts and dates of a partner's drawings are not specified, it is assumed that the drawings were spread evenly over the whole year. The average period for which the money remained withdrawn is therefor …

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CBSE 2026Set ANNUAL1 mark
$Q. Fill in the blank: All the partners are collectively called as ________.$
›Reveal solutionSolution

Answer: A firm.

Under the Indian Partnership Act, 1932, the persons who have entered into partnership with one another are individually called partners and collectively called a firm. The …

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CBSE 2026Set ANNUAL1 mark
$Q. State whether True or False: To prepare partnership deed is compulsory.$
›Reveal solutionSolution

The statement is False.

The law does not make a written partnership deed compulsory; a partnership can be formed even by an oral or implied agreement. A written deed is only strongly …

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CBSE 2026Set ANNUAL1 mark
$Q. Answer in one word/sentence: The provisions of which Act applies in the absence of partnership deed?$
›Reveal solutionSolution

Answer: Indian Partnership Act, 1932.

When there is no partnership deed, or it is silent on a point, the provisions of the Indian Partnership Act, 1932 apply - e.g. equal profit sharing, no interest on …

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Q.Sudha, a partner withdrew ₹ 12,000 on 31st October, 2023 for her personal use. Interest on drawings is charged @ 6% p.a. The interest on Sudha’s drawings for the year ended 31st March, 2024 will be : (A) ₹ 300 (B) ₹ 30 (C) ₹ 3,000 (D) ₹ 150

Part (a)

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