Select the conditions required for computing interest on drawings using average period method:

(A) Equal amount of drawings

(B) Fixed interval of drawings

(C) Varying amounts of drawings

(D) Different interval of drawings

(E) Rate of Interests

Choose the correct answer from the options given below:

The correct answer is A, B and E only.

Let us understand the conditions required for computing interest on drawings using the average period method step-by-step:

1. Understanding the Average Period Method:
The average period method is a shortcut method used to calculate interest on drawings made by partners in a partnership firm. This method is applied to save time and avoid calculating interest separately for each drawing when drawings are made regularly.

2. Analyzing the Required Conditions:
To apply this method, certain strict conditions must be satisfied:

• (A) Equal amount of drawings: The amount withdrawn by the partner must be the same each time. If the amounts vary, this shortcut method cannot be used. Thus, statement (A) is correct.
• (B) Fixed interval of drawings: The time interval between any two consecutive drawings must be uniform (e.g., monthly, quarterly, half-yearly). If the interval is irregular, we cannot compute a single average period. Thus, statement (B) is correct.
• (E) Rate of Interest: To calculate any interest, the rate of interest must be specified. Thus, statement (E) is correct.

3. Why other statements are incorrect:
Statement (C) "Varying amounts of drawings" and Statement (D) "Different interval of drawings" represent conditions where the Product Method or Simple Interest Method must be used instead of the Average Period Method. Therefore, they are incorrect for this specific method.

Consequently, the conditions required are A, B, and E only.