Practice Activity 11.6 Computation of interest on drawings made by a partner from a partnership

Practice Activity 11.6 Computation of interest on drawings made by a partner from a partnership business

Gaaba and Hapuru contribute ₦700,000 and ₦400,000 respectively to commence a partnership business in April 2018. Based on the partnership agreement, the profits or losses of the business are to be shared equally. The accounting records are to be prepared to 31 March every year.

Gaaba and Hapuru withdrew several cash amounts from the partnership. The withdrawals are as follows:

30 April 2018 ₦30,000 withdrawn by Gaaba

1 June 2018 ₦21,000 withdrawn by Hapuru

1 August 2018 ₦35,000 withdrawn by Gaaba

30 September 2018 ₦20,000 withdrawn by Hapuru

The interest on each withdrawal is 5 percent per annum.

Required: Calculate the interest on drawings made by Gaaba. Round up your answers to 2 decimal places.

A suggested solution to practice activity 11.6

Gaaba withdrew from the partnership on two occasions, that is, 30 April 2018 and 1 August 2018. From 30 April 2018 to 31 March 2019, there is a period of 11 months. From 1 August 2018 to 31 March 2019, there is a period of 8 months.

Calculation of interest on drawings made by Gaaba

30 April 2018 Drawings is ₦30,000

Interest is 30,000 x 5% x 11/12 = ₦1,375

1 August 2018 Drawings is ₦35,000

Interest is 35,000 x 5% x 8/12= ₦1,166.67

The total interest on drawings made by Gaaba for the year ended 31 March 2019 is ₦2,541.67.