Interest on drawings is calculated on each withdrawal separately. Multiply the amount by the rate and by the fraction of the year left after the withdrawal date.
This lesson is part of the partnership worked set. The agreement there charges 6% per year on drawings for the months they were out of the firm.
How do I count the months?
Count from the drawing date to the year end. For a year ending 31 December, a withdrawal on 1 January is out for 12 months, and one on 1 December is out for 1 month.
Interest = amount × rate × months ÷ 12.
Worked example: Hafiz and Jia Wen
Hafiz drew RM2 000 on the first day of each month. The months outstanding run from 12 down to 1, and they add to 12 + 11 + 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 78.
Interest = 2 000 × 6% × 78/12. Since 78 ÷ 12 = 6.5, this is 2 000 × 6.5 × 0.06 = RM780.
Jia Wen drew RM6 000 on 1 July and RM6 000 on 1 October.
| Date | Amount (RM) | Months out | Interest (RM) |
|---|---|---|---|
| 1 July | 6 000 | 6 | 6 000 × 6% × 6/12 = 180 |
| 1 October | 6 000 | 3 | 6 000 × 6% × 3/12 = 90 |
| Total | 12 000 | 270 |
The partners are charged RM780 + RM270 = RM1 050 in total. This amount is added to net profit in the appropriation account and charged to each partner’s current account.
The mistake that costs marks
One slip is to charge a full year of interest on every withdrawal. That treats drawings made in October as if they were made in January.
| Step | Wrong | Right |
|---|---|---|
| Jia Wen’s interest | 12 000 × 6% = 720 | 180 + 90 = 270 |
| Hafiz’s interest | 24 000 × 6% = 1 440 | 780 |
| Total added to profit | 2 160 | 1 050 |
The wrong method overstates the interest by RM1 110, which changes the residual and every partner’s share.
Check yourself
A partner draws RM3 000 on 1 March and RM3 000 on 1 September. The rate is 8% and the year ends on 31 December. Find the interest.
Answer
1 March to 31 December is 10 months: 3 000 × 8% × 10/12 = RM200.
1 September to 31 December is 4 months: 3 000 × 8% × 4/12 = RM80.
Total interest = RM280.
What to study next
Next, check that all these figures reconcile in checking that the residual profit allocation reconciles. You can also log any month-counting slip in the mistake log and paper-error review tool.
If you want a teacher to practise dates and rates with you, see online one-to-one Accounting tuition.