Q.A partner withdrew ₹5,000 at the beginning of every month throughout the year ended 31st March 2024. Calculate interest on drawings @6% p.a. using the average period (product) method.

Because equal amounts are drawn at equal, regular intervals throughout the year, the average period shortcut can be used instead of working out each month's interest separately.

Step 1: Total drawings for the year

₹5,000 × 12 months = ₹60,000

Step 2: Average period outstanding

Since an equal amount is drawn at the beginning of every month throughout a full year, the standard average period is 6.5 months (the first month's drawing is outstanding for 12 months, the last month's drawing for 1 month, and being equal, regular instalments, the average of 12, 11, 10, ..., 1 works out to 6.5).

Step 3: Apply the Average Period (shortcut) Method

Interest on Drawings = Total Drawings × Rate/100 × Average Period (months)/12

= ₹60,000 × 6/100 × 6.5/12

= ₹60,000 × 0.06 × 0.5417

= ₹1,950

Verification using the full Product Method

Full Product Method shown above as the verification working — multiplying each month's ₹5,000 by its own outstanding months (12 down to 1), totalling to ₹3,90,000, and applying the rate for one month gives the ident …

A frequent error is using 6 months (the halfway point of the year) instead of the correct 6.5 months for beginning-of-month drawings — 6 months is the correct average only for drawings made in the middle of every month, not at the start. Mixing up the 'beginning …