In this question, in interest on capital why 112 is multiplied Is product method not followed only for interest - Accountancy - Accounting for Partnership Basic Concepts

Question

I n   t h i s   q u e s t i o n ,   i n   i n t
e r e s t   o n   c a p i t a l   w h y   1 12
  i s   m u l t i p l i e d ?   I s   p r o d u
c t   m e t h o d   n o t   f o l l o w e d   o
n l y   f o r   i n t e r e s t   o n   d r a w
i n g s ?

Neha Chopra · Accepted Answer

Dear Student

In interest on capital using product method, it is multiplied by
1/12 because,
See here capital is multiplied by the number of months it has been
used, therefore to calculate the effective capital throughout the
year we shall have to divide it with 12 And Interest is provided on
Effective capital present throughout the year

For e g it Rs 1,00,000 was opening capital and if it has been used
for the whole year then, its product would have been 1,00,000 x 12
= 12,00,000 and while calculating Interest on capital we have to
divide it by 12 to get effective capital throughout the year i e
Effective capital = 12,00,000 / 12 = 1,00,000/- and Interest =
1,00,000 x 6% = 6,000/-

Product method can be used for both interest on capital or interest
on drawings

Hope this helps
Regards

I n t h i s q u e s t i o n , i n i n t e r e s t o n c a p i t a l w h y 1 12 i s m u l t i p l i e d ? I s p r o d u c t m e t h o d n o t f o l l o w e d o n l y f o r i n t e r e s t o n d r a w i n g s ?

$I n t h i s q u e s t i o n, i n i n t e r e s t o n c a p i t a l w h y \frac{1}{12} i s m u l t i p l i e d ? I s p r o d u c t m e t h o d n o t f o l l o w e d o n l y f o r i n t e r e s t o n d r a w i n g s ?$