There on two methods of calculating Interest on Drawings:-
1) Simple Method:- Under this method, interest on drawing is calculated separately on each amount of drawings for the duration of time the amount of drawings has been used by the partner i.e. from the date of drawings till the close of accounting period.
Inerest on Drawings = Amount of Drawings × (Rate of Inerest/100) × (Months/12)
2) Product Method:- Under this method each amount of drawings is multiplied by its duration. Then all the products are added up and the interest is calculated on the total of products for one month.
Inerest on Drawings = Total of Products × (Rate of Inerest/100 ) ×( 1/12)