(a) Reena and Teena were partners in a firm sharing profits and losses in the ratio of 2 : 1. Teena withdrew ₹

Question

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

CBSECBSE Class XII Board 2026MCQ· 1mImportance★★★★★

✓ Free question

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
To Balance c/d	xxx	By Salary	xxx
		By Commission	xxx
Total	xxx	Total	xxx

The formula for calculating interest on drawings

The NCERT textbook gives the following formula:

Interest on Drawings = Amount of Drawings × Rate of Interest × Period/12

The period is the number of months for which the money was withdrawn. If drawings are made at the beginning of each month, the average period is 6.5 months. If at the end of each month, it is 5.5 months. If a single drawing is made during the year, the period is the time from the date of withdrawal to the end of the accounting year.

For example, if a partner withdraws ₹10,000 at the beginning of each month and the interest rate is 10% per annum, the total drawings for the year are ₹1,20,000. The average period is 6.5 months. So:

Interest on Drawings = 1,20,000 × 10/100 × 6.5/12 = ₹6,500

A common mistake to avoid

Students often confuse Interest on Drawings with Interest on Capital. Remember:

Interest on Capital is an expense for the firm and income for the partner.
Interest on Drawings is income for the firm and an expense for the partner.

They appear on opposite sides of the Profit and Loss Appropriation Account.

The key takeaway

Interest on Drawings is the firm’s way of saying: “If you take money out, you pay for the privilege.” It ensures fairness among partners and keeps the firm’s capital intact. In your exam, you will most often be asked to calculate it using the formula above and then show it in the Partner’s Capital Account and the Profit and Loss Appropriation Account.

Part (a): Interest on Teena's drawings = Rs.7,800 -> (A). Part (b): Average period for beginning-of-quarter drawings = 7.5 months -> (C).

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

Total drawings = 20,000 x 12 = Rs.2,40,000
Interest = 2,40,000 x 6% x 6.5/12 = Rs.7,800

✓Final answer

(A) Rs.7,800

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 34 on this concept.

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

Interest = 2,40,000 x 6% x 6.5/12 = Rs.7,800

✓Final answer
$(A) Rs.7,800$

Part (b)

Equal amount at the beginning of each quarter stays for 12, 9, 6 and 3 months.

Average period = (12 + 9 + 6 + 3) / 4 = 30/4 = 7.5 months

✓Final answer
$(C) 7.5 months$
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:
$\text{Interest} = \text{Total Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Average Period}}{12}$ $= 60,000 \times \frac{12}{100} \times \frac{4.5}{12}$ $= 60,000 \times 0.12 \times 0.375$ $= 60,000 \times 0.045$ $= ₹2,700$
Journal Entry (at year-end 31st March, 2025):

Date Particulars L.F. Debit (₹) Credit (₹)
31-03-2025 Arora's Capital/Current A/c Dr. 2,700
To Interest on Drawings A/c 2,700
(Being interest charged on drawings)

Watch out

A common mistake is to calculate interest for the full year (12 months) or to assume four quarterly withdrawals. Since the financial year starts on 1st October, 2024 and ends on 31st March, 2025, only 6 months are covered, yielding just two withdrawals. Always count the actual withdrawals within the accounting period.

✓Final answer
$Interest on Arora's drawings for the year ended 31st March, 2025 is ₹2,700 . The correct answer is (B) ₹2,700 .$
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

Equivalently, period = (n - 1) / 2 = (12 - 1) / 2 = 5.5 months, where n = 12 months. The interest rate (8% p.a.) and the amount (₹4,000) decide the interest figure, not the period.

✓Final answer
$The period for interest on drawings is 5 1/2 months — option (B).$
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 therefore half the year, i.e. 6 months, and interest on drawings is charged for 6 months on the total drawings.

✓Final answer
$(b) 6 months.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. A partner withdrew ₹ 10,000 each on 1st January and 1st July. Interest on his drawings @ 10% p.a on 31st December, 2024 will be _______.$
(a) ₹ 500
(b) ₹ 1000
(c) ₹ 1250
(d) ₹ 1500
(a) ₹ 500
(b) ₹ 1000
(c) ₹ 1250
(d) ₹ 1500
›Reveal solutionSolution

Interest on drawings = ₹ 1,500 (Option D).

Interest on drawings @10% p.a. is calculated separately on each withdrawal, from the date of withdrawal to the end of the accounting year (31st December, 2024):

Drawing Amount Period outstanding (to 31 Dec) Interest @10% p.a.
1st January ₹10,000 12 months ₹10,000 × 10% × 12/12 = ₹1,000
1st July ₹10,000 6 months ₹10,000 × 10% × 6/12 = ₹500
Total ₹1,500

Total interest on drawings = ₹1,000 + ₹500 = ₹1,500.

✓Final answer
$(D) ₹ 1500.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. Rita and Usha were partners in a firm sharing profits and losses in the ratio of 3 : 5. During the year, Usha withdrew ₹15,000 at the end of each month. Interest on drawings is to be charged @ 8% p.a. The average period for the calculation of interest on drawings will be$
(a) 4½ months
(b) 6 months
(c) 6½ months
(d) 5½ months
›Reveal solutionSolution
Drawings made at the end of every month carry an average period of 5½ months (not 6 or 6½), because the very last withdrawal (end of March) earns no interest at all.

When interest on drawings is charged using the average period (product) method, the formula depends on exactly when during each period the partner withdraws money:

Drawings at the beginning of every month → average period = (12 + 1)/2 = 6½ months

Drawings at the middle of every month → average period = 6 months

Drawings at the end of every month → average period = (12 − 1)/2 = 5½ months

Here, Usha withdrew ₹15,000 "at the end of each month." The first withdrawal (end of April, say) is outstanding for 11 months by the close of the accounting year (31st March); the last withdrawal (end of March) is outstanding for 0 months. The average of this evenly-spaced series (11, 10, 9, …, 1, 0) is (11+0)/2 = 5.5 months.

This average period is then applied to the total annual drawings (12 × ₹15,000 = ₹1,80,000) at the given 8% p.a. rate to compute the actual interest (though the question only asks for the average period, not the rupee amount):

Interest on Drawings = Total Drawings × Rate × Average Period/12 = 1,80,000 × 8% × 5.5/12 = ₹6,600 (for reference).

✓Final answer
$Option (d) "5½ months" — equal monthly drawings made at the end of each month give an average period of (12 - 1)/2 = 5.5 months.$
CBSE 2026Set ANNUAL1 markMCQ
$Q. Or. Abha, Manju and Rhea were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. During the year ended 31st March, 2024, Rhea withdrew ₹30,000 at the beginning of each half-year. Interest on Rhea's drawings @ 10% p.a. for the year ended 31st March, 2024 will be$
(a) ₹6,000
(b) ₹4,500
(c) ₹3,000
(d) ₹1,500
›Reveal solutionSolution
With two equal half-yearly drawings at the start of each half, interest works out to ₹4,500 using an average outstanding period of 9 months.

Rhea withdrew ₹30,000 at the beginning of each half-year, i.e., twice during the year:

1st withdrawal: 1st April, 2023 → outstanding for the full 12 months till 31st March, 2024

2nd withdrawal: 1st October, 2023 → outstanding for 6 months till 31st March, 2024

Average period = (12 + 6)/2 = 9 months

Total drawings during the year = ₹30,000 × 2 = ₹60,000

Interest on Drawings = Total Drawings × Rate × Average Period/12

= ₹60,000 × 10% × 9/12

= ₹60,000 × 0.10 × 0.75

= ₹4,500

(Equivalently, computing each withdrawal separately: 30,000×10%×12/12 = 3,000, plus 30,000×10%×6/12 = 1,500, total = 4,500 — the same answer, cross-checked.)

✓Final answer
$Option (b) "₹4,500" — interest on Rhea's half-yearly drawings of ₹30,000 each, at 10% p.a. for an average period of 9 months, is ₹4,500.$
CBSE 2026Set ANNUAL1 mark
$Q. What is the total amount of interest on drawings of a partner if a partner withdraws ₹ 15,000 at the beginning of every month throughout the financial year at interest of 12% P.A. ?$
›Reveal solutionSolution

Interest on drawings (fixed monthly amount, drawn at the start of each month, for a full year) = ₹11,700.

Step 1 — Total drawings for the year:

Monthly drawings = ₹15,000

Total drawings for 12 months = 15,000 × 12 = ₹1,80,000

Step 2 — Find the average period for which the money was withdrawn:

Since the partner withdraws the SAME amount at the BEGINNING of every month throughout the year, the average period for which the total drawings remain outstanding is:

Average Period = (Time left after 1st drawing + Time left after last drawing) ÷ 2 = (12 + 1) ÷ 2 = 6.5 months

(This is the standard shortcut for "same amount, same interval, drawn at the start of each period, for the full year.")

Step 3 — Apply the interest formula:

Interest on Drawings = Total Drawings × Rate × (Average Period ÷ 12)

= 1,80,000 × 12% × (6.5 ÷ 12)

= 1,80,000 × 0.12 × 0.5417

= 21,600 × (6.5 ÷ 12)

= 21,600 × 6.5 ÷ 12

= 1,40,400 ÷ 12

= ₹11,700

This interest on drawings is a gain to the firm (and hence to all the partners collectively) — it is debited to the partner's Current/Capital Account and credited to the Profit and Loss Appropriation Account.

✓Final answer
$Total interest on drawings = ₹11,700 (Total drawings ₹1,80,000 \times 12% \times 6.5/12 average months).$
CBSE 2025Set 67/5/11 markMCQ
$Q. Sudha, a partner withdrew ₹ 12,000 on 31st October, 2023 for her personal use. Interest on drawings is charged @ 6% p.a. The interest on Sudha’s drawings for the year ended 31st March, 2024 will be : (A) ₹ 300 (B) ₹ 30 (C) ₹ 3,000 (D) ₹ 150$
(OR)
$The partnership deed should be prepared as per the provisions of which of the following Acts ? (A) The Companies Act, 2013 (B) The Indian Partnership Act, 1932 (C) The Indian Stamp Act (D) The Cooperative Societies Act$
›Reveal solutionSolution
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

Watch out

Since the withdrawal was on 31 October, interest accrues only for the 5 remaining months (Nov–Mar), not 6.

✓Final answer
$Interest on Sudha's drawings for the year ended 31st March 2024 = ₹300 — option (A) .$

Part (b)

The partnership deed records the profit-sharing ratio, interest on capital/drawings, salaries, and other terms among partners. Being the constitutive document of a partnership, it is drawn up under the Indian Partnership Act, 1932, which defines partnership and governs partners' rights, duties, registration and dissolution.

(A) Companies Act, 2013 → governs companies, not partnerships.

(C) Indian Stamp Act → deals only with stamp duty on documents.

(D) Cooperative Societies Act → governs cooperative societies.

✓Final answer
$A partnership deed should be prepared as per (B) The Indian Partnership Act, 1932 .$

Drawing	Amount	Period outstanding (to 31 Dec)	Interest @10% p.a.
1st January	₹10,000	12 months	₹10,000 × 10% × 12/12 = ₹1,000
1st July	₹10,000	6 months	₹10,000 × 10% × 6/12 = ₹500
Total			₹1,500

CBSE 2025Set 67/6/11 markMCQ

Q. Ravi, Mohan and Vinod were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. The partnership deed provided that interest on partners' drawings will be charged @ 12% p.a. Starting from 1st July, 2023, Mohan withdrew ₹ 20,000 every month for his personal use. For the year ended 31st March, 2024 interest on Mohan's drawings will be charged for __________ months. (A) 6 1/2 (B) 6 (C) 5 1/2 (D) 5

›Reveal solution

Interest on Mohan's drawings is charged for 5 months. He drew Rs 20,000 at the beginning of each month for 9 months (1 July 2023 to 1 March 2024), and the average period for equal beginning-of-month drawings over 9 months is (9 + 1) / 2 = 5 months.

Concept First: Why the Period Matters

Interest on drawings is a charge on the partner - it reduces his share of profit. Mohan draws Rs 20,000 on the 1st of every month starting 1 July 2023, and the year ends 31 March 2024. You cannot charge interest for the full year on each withdrawal, because each rupee was in Mohan's hands only from the date he drew it until the year-end. The earlier the drawing, the longer the money was out of the firm.

For equal drawings made at the beginning of each month, interest is charged on the average period:

Beginning of each month, full year -> (12 + 1) / 2 = 6.5 months
End of each month, full year -> (12 - 1) / 2 = 5.5 months
Middle of each month, full year -> 6 months

But here the drawings run for only 9 months (July to March), not the full year, so the average period must be recomputed for 9 drawings.

The Correct Calculation

Mohan draws Rs 20,000 on the 1st of each month from July 2023 to March 2024 - that is 9 drawings, total Rs 1,80,000. For each drawing, count the months from the date of drawing to 31 March 2024 (the first drawing is outstanding 9 months, the last 1 month):

Month of Drawing	Amount (Rs)	Months to 31 Mar 2024	Product (Rs-months)
1 Jul 2023	20,000	9	1,80,000
1 Aug 2023	20,000	8	1,60,000
1 Sep 2023	20,000	7	1,40,000
1 Oct 2023	20,000	6	1,20,000
1 Nov 2023	20,000	5	1,00,000
1 Dec 2023	20,000	4	80,000
1 Jan 2024	20,000	3	60,000
1 Feb 2024	20,000	2	40,000
1 Mar 2024	20,000	1	20,000
Total	1,80,000		9,00,000

Average period = Total product / Total drawings = 9,00,000 / 1,80,000 = 5 months.

Tip

Shortcut for equal beginning-of-month drawings made for only part of the year: average period = (months of first drawing + months of last drawing) / 2 = (9 + 1) / 2 = 5 months.

Watch out

Do not apply the full-year 6.5-month figure - the drawings ran only 9 months (July to March), so the average period is 5 months, not 6.5.