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JAMB Accounts Principles of Accounts 2018 Paper

Question : 33

Total: 88

Tea and Cup are into a partnership business. Interests on drawings made by partners are at 10% per annum. Tea’s capital is ₦70000 and current balance is ₦50000. He withdrew the following amounts during the year : 3000 on 31st January ,2000 on 31st March, 4000 on 1st July, 1500 on the 30th September, 2500 on 1st November. Cup’s capital is ₦100000 and current balance is ₦40000. He made no drawings during the period. What is the interest on the drawings of Tea?

₦705
₦500
₦1000
₦10000

Validate

Solution:

Concept:

Interest on drawings is charged on each withdrawal for the period it was outstanding during the year.

Explanation:

Tea’s withdrawals are charged at 10% per annum, using the period from each withdrawal date to the end of the accounting year (assumed to be 31 December).

• ₦3000 on 31 January:

3000 \times 10\% \times \frac{11}{12} = ₦275

• ₦2000 on 31 March:

2000 \times 10\% \times \frac{9}{12} = ₦150

• ₦4000 on 1 July:

4000 \times 10\% \times \frac{6}{12} = ₦200

• ₦1500 on 30 September:

1500 \times 10\% \times \frac{3}{12} = ₦37.50

• ₦2500 on 1 November:

2500 \times 10\% \times \frac{2}{12} = ₦41.67

Total interest on drawings:

275 + 150 + 200 + 37.50 + 41.67 = ₦704.17 \approx ₦705

Cup made no drawings, so no interest is charged on Cup’s drawings.

Answer:

₦705

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