​A sole proprietor withdrew ₹ 1,00,000 on January 31, 2023 for his personal use from his business. Calculate interest on Drawings @ 12% p.a. for the year 2022-23.

Correct option is B

The correct answer is (b) ₹2,000

Explanation:
• Drawings made on 31 January 2023 remain invested for 2 months (February & March) in the financial year 2022–23.
• Formula:
Interest on Drawings = Amount × Rate × Time / 12
= ₹1,00,000 × 12% × 2/12
= ₹2,000
• Hence, interest on drawings = ₹2,000.

Information Booster:
• Drawings are withdrawals by the proprietor for personal use.
• Interest on drawings is charged by the business to discourage excessive personal withdrawals.
• It is treated as income for the business and expense for the proprietor.
• Recorded on the credit side of the Profit & Loss Account.
• It reduces the capital balance in the Balance Sheet.

Additional Knowledge:
• If drawings occur monthly, interest is calculated for an average period of 6½ months.
• When drawings occur quarterly, average period ≈ 7½ months.
• Interest on drawings is computed only when specified in the partnership deed or business terms.
• In case of multiple withdrawals, average time is considered for convenience.