6.

74 PRINCIPLES AND PRACTICE OF ACCOUNTING

UNIT 4 : AVERAGE DUE DATE

LEARNING OUTCOMES
After studying this chapter, you will be able to:

w Understand what is average due date and how to choose 0 (zero) day for calculating average due date.

w Learn the technique of calculating due date

w Learn calculation of average due date where amount is lent in various instalments.

w Calculate average due date for determining interest on drawings.

w Familiarize with the steps involved in calculation of average due date where amount is lent in one
instalment but repayment is done in various instalments. Also understand days of grace and learn the
technique of maturity date by counting the days of grace.

UNIT OVERVIEW

USES OF AVERAGE DUE DATE

Bill of
For calculation of Where amount
Exchnage/ Where amount
interest on drawings is lent in various is lent in one
Promissory
of partners instalments
Note instalment

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.75

CALCULATION OF DUE DATE

If Bill/Invoice
is payable

at a stated no. of
on a specific date months(s)/days
after date

Due date will be on that date

Due date will be on which comes after adding
that specific date stated number of months/
days to the date of invoice/bill
+ 3 days of grace

4.1 INTRODUCTION
In business enterprises, a large number of receipts and payments by and from a single party may occur
at different points of time. To simplify the calculation of interest involved for such transactions, the idea
of average due date has been developed. Where a person owing several amounts due on different dates,
desires to pay the total amount payable by him/her on a particular date, so that neither the debtor nor the
creditor stands to lose or gain anything by way of interest, that date is known as average due date. Average
Due Date is weighted average of due dates of various transactions where amount of each transaction is
used as weight. The unique feature f this approach is that the party making payment neither suffers any loss
nor gains anything by this arrangement of making a single payment. Average due date is generally used in
following circumstances:

i) For calculating interest on drawings of partners;

ii) For settling accounts between principle and agent;
iii) For settling contra accounts e.g. where parties sell goods to each other;
iv) For making lump sum payment against various bills drawn on different dates with different due
dates;
In this unit, we shall elaborate the underlying principle of determining average due date covering the cases
where the amount is lent in various instalments but repayment is made in a single instalment as well as
where the amount is lent in one instalment but repayment is made by various instalments. The technique of
average due date is also useful for calculating interest on drawings made by the proprietors or partners of a
business firm at several points of time.

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 6.76 PRINCIPLES AND PRACTICE OF ACCOUNTING

Average due date: It is the mean or equated date on which a single total payment may be made in lieu
of different payments on different dates without any loss to either party.

Where payment is not made on the average due date, the party receiving the amount charges interest
for as many days as the payment is delayed from the average due date.

The formula for calculating average due date is as follows:

Total of the products

Average due date = Base date ±
Total of the amounts

Points to be noted:
1. Selection of base date/ zero date: Such a date may be the due date of the first transaction or the due
date of the last transaction or any other due date between the first and the last but preferably earlier
due date may be taken.
2. While ascertaining the number of intervening days (plus or minus) between the base date and the due
date of each transaction ignore the first date and include the last day.
3. If due date is in fraction, round it off.
4. If amount is paid before due date, rebate is given.
5. If amount is paid after due date, then interest is charged.
6. Whenever there is a sale of goods by two persons to each other on different dates, the formula for
calculating average due date becomes:

Difference in products
Base date ±
Difference in amounts

4.2 CONCEPT OF DUE DATE (DATE OF MATURITY)

The due date of a bill of exchange/invoice is the date when the amount of a bill/invoice is payable by the
drawee/ creditor to drawer/ debtor.
4.2.1 Calculation of Due Date after Taking into Consideration Days of Grace
A Bill of exchange or promissory note matures on the date on which it falls due. And every promissory note
or bill of exchange (other than those payable on demand or at sight or on presentment) falls due on the
third day after on which it is expressed to be payable.
Examples
(i) A bill dated 30th September is made payable three months after date. It falls due on 2nd January.
(ii) Due Date=30 Dec
(iii) Maturity date= 30 Dec +3 =2 Jan
(ii) A note dated 1st January is payable one month after sight. It falls due on 4th February.
© The Institute of Chartered Accountants of India
 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.77

4.2.2 Calculating Due Date of Bill or Note Payable Few Months after Date or Sight
When the bill is made payable at a stated number of months after date or after sight or after certain events,
then the period stated shall be held to terminate on the date of the month which corresponds with the day
on which the instrument is dated. If the month in which the period would terminate has no corresponding
day, the period shall be held to terminate on the last day of such month.

Example: A Bill due on 29th January, 2015 is made payable at one month after date. The due date of
instrument is 3rd day after 28th February, i.e., 3rd March (in 2015, February is of 28 days only).
4.2.3 Calculation of Due Date when the Maturity Day is a Holiday
When the day on which a promissory note or bill of exchange is at maturity (after including days of grace) is
a public holiday, the instrument shall be deemed to be due on the preceding business day. The expression
“public holiday” includes Sundays and other days declared by the Central Government by notification in the
official gazette, to be a public holiday. And now if the preceding day is also a public holiday, it will fall on the
day preceding the previous day. But if the holiday happens to be emergency or unforeseen holiday then the
date shall be the next following day.(Ref: Negotiable Instruments Act 1881).

If Maturity Day is holiday (after

including days of grace)

Public Holiday (including Sundays & other Emergency or unforeseen

days declared by Central Government by holiday
notification in the official gazette)

Due date = Next following day

Due date = Preceding Business day

If Preceding day is also Public Holiday

Due date = Day Preceding the previous day

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 6.78 PRINCIPLES AND PRACTICE OF ACCOUNTING

4.3 TYPES OF PROBLEMS

w Case 1: Learn calculation of average due date where one Party is involved
w Case 2: Learn calculation of average due date where inter transactions between 2 Parties are involved
w Case 3: Learn calculation of average due date where amount is repaid in Instalments
w Case 4: Learn Calculation of average due date for determining interest on drawings.

Case 1: Learn calculation of average due date Where one Party is involved
Calculation of average due date
Under this type of problem, average due date is calculated as follows :

a. Take the earliest due date as starting day or base date or “O” day for convenience. Any date whatsoever,
may also be taken as “O” day.
b. Consider the number of days from base date up to each due date. Calculations may also be made in
month.
c. Multiply the number of days by the corresponding amounts.
d. Add up the amount and products.
e. Divide the “Product total” by “Amount total” and get result approximately upto a whole number.
f. This number is added in the base date to find the average due date.
Thus the formula for the average due date can be under.
Total of products
Average due date = Base date ±
Total amounts
Note: For calculation of no. of days, no. of days in each respective month involved are to be considered
individually.

? ILLUSTRATION 1
The followings are the amounts due on different dates in between the same parties:
Amount Due Date
`
500 3rd July
800 2nd August
1,000 11th September
Suggest a date on which all the bills may be paid out without any loss of interest to either party.

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.79

 SOLUTION

Considering 3rd July as the starting day the following table is prepared:

Due Dates Amount No. of Days from 3rd July Products

3rd July 500 0 0
2nd August 800 30 24,000
11th September 1,000 70 70,000
2,300 94,000
94,000
Average Due Date = 3rd July +
2,300
= 3rd July + 41 days = 13th August

Loss of Interest: 13th August to 11th September

Assuming 5% is interest rate, the debtor loses interest due to early payment of ` 1,000 for 29 days (from 13th
August to 11th September) i.e., ` 4. 1000 × 29/365 × 5/100

Gain of Interest: 3rd July to 13th August and 2 August to 13th August

He however, gains interest, due to late payment on ` 500 for 41 days from 3rd July to 13th August and on
` 800 for 11 days i.e. ` 2.80 + ` 1.20, i.e., ` 4.

Thus, the debtor neither loses nor gains by payment of all the amounts on 13th August.
It should be noted that in calculating the number of days only one of the dates, either the starting date or
the due date is to be counted.
In the same manner, bill due to one party may be cancelled as against bills of same amount due from the
same party after adjustment of interest for the period elapsing between the two average due dates. Instead
of payment of several bills on the same date as above, other bill starting from the average due date for
agreed period together with interest for the period may be accepted.

? ILLUSTRATION 2
The following amounts are due to X by Y. Y wants to pay off (a) on 18th March or (b) on 14th July. Interest rate of
8% p.a. is taken into consideration.

Due Dates `
10th January 500
26th January (Republic Day) 1,000
23rd March 3,000
18th August (Sunday) 4,000

Determine the amount to be paid in (a) and in (b).

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 6.80 PRINCIPLES AND PRACTICE OF ACCOUNTING

 SOLUTION
Taking 10th January as the base date

Due Date Due Date No. of days Amount Product

(Normal) (Actual) from 10th January. . . `
10th January 10th January 0 500 0
26th January 25th January 15 1,000 15,000
23rd March 23rd March 72 3,000 2,16,000
18th August 17th August 219 4,000 8,76,000
8,500 11,07,000

11,07,000
Average Due Date = 10th Jan. + = 10th Jan + 131 days = 21st May
8500

January 21
February 28
March 31
April 30
110
(a) If the payment is made on 18th March rebate will be allowed for unexpired time from 18th March to 21th
May i.e., 13 + 30 + 21 i.e. for 64 days. He has to pay the discounted value of the total amount.
8 64 64
Discount = 8,500 x x = 680 x = ` 119.2
100 365 365
Amount to be paid on 18th March= ` (8,500 – 119.23) = ` 8,380.77
(b) If the payment is deferred to 14th July, interest is to be paid from 21th May to 14th July i.e., for
10 + 30 + 14 = 54 days.
8 54 54
Interest = 8,500 x x = 680 x = ` 100.6
100 365 365
The amount to be paid on 14th July.
` 8,500 + 100.6 = 8600.6

? ILLUSTRATION 3

Calculate Average Due date from the following information:

Date of the bill Term Amount

`
August 10, 2015 3 months 6,000
October 23, 2015 60 days 5,000
December 4, 2015 2 months 4,000

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.81

January 14, 2016 60 days 2,000

March 14, 2016 2 months 3,000
(Assume February of 28 days)

 SOLUTION
Calculation of Average Due Date
Taking 10th August 2015 as the base date

Date of bill Term Due date- No. of days Amount Product

Maturity Date from 10th
` `
August 2015
August 10, 2015 3 months Nov. 13, 2015 95 6,000 5,70,000
October 23,2015 60 days Dec. 25, 2015 137 5,000 6,85,000
December 04, 2015 2 months Feb. 07, 2016 181 4,000 7,24,000
January 14, 2016 60 days Mar. 18, 2016 220 2,000 4,40,000
March 14, 2016 2 months May 17, 2016 280 3,000 8,40,000
20,000 32,59,000
Total of product 32,59,000
Average due date = = = 162.95=163 days
Total of amount 20,000
= 163 days after August 10, 2015 i.e. January 20, 2016.
Days of Grace added as it is case of Bills and it is Negotiable Instrument.

? ILLUSTRATION 4
A trader having accepted the following several bills falling due on different dates, now desires to have these bills
cancelled and to accept a new bill for the whole amount payable on the average due date :
Sl. No. Date of bill Amount Usance of the bill
1 1st March 2016 400 2 months
2 10th March 2016 300 3 months
3 5th April 2016 200 2 months
4 20th April 2016 375 1 month
5 11th May 2016 500 2 months
You are required to find the said average due date.

 SOLUTION

Calculation of the average due date

Taking 4th May as the base date
Sl. No. Date of bill Due Date of Amount No. of days Product
Maturity ` from starting
date (4th May)
1 1st March 2016 4th May 400 0 0

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 6.82 PRINCIPLES AND PRACTICE OF ACCOUNTING

2 10th March 2016 13th June 300 40 12,000

3 5th April 2016 8th June 200 35 7,000
4 20th April 2016 23rd May 375 19 7,125
5 11th May 2016 14th July 500 71 35,500
Total : 1,775 61,625
Average Due Date is 61,625/1,775=34.71 i.e., 35 days after the assumed due date, 4th May, 2016. The new
bill should be for ` 1,775 payable on June 8th, 2016.

Case 2: Learn calculation of average due date Where inter transactions between 2 Parties are involved
When more than one party is involved where one party purchase and also sells to other party like JK Tyres
and Maruti where Maruti sells car to JK Tyres for their employees and purchases Tyres from them. In such a
case instead of paying gross amount they may go for new amount i.e. Purchase amount and sales amount
will be set off and thus here we take difference of amount and produce as Net Amount. In such cases, earliest
date of both parties is taken as the base date.

? ILLUSTRATION 5
Two traders X and Y buy goods from one another, each allowing the other one month’s credit. At the end of 3
months the accounts rendered are as follows:

Goods sold by X to Y Goods sold by Y to X

` `
April 18 60.00 April 23 52.00
May 15 70.00 May 24 50.00
June 17 80.00
Calculate the date upon which the balance should be paid so that no interest is due either to X or Y.

 SOLUTION
Taking May 18th as the zero or base date ( April 18 +One month Credit=18 May)
For Y’s payments:

Date of Due Date Amount No. of days from Products

Transactions the base date
(1) (2) (3) (4) (5)
April 18 May 18 60 0 0
May 15 June 15 70 28 1,960
June 17 July 17 80 60 4,800
Amount Due to X 210 Sum of products 6,760
For X’s payments

The students should note that the same base date should be taken. Therefore, the base date will be May
18th in this case also.

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.83

Date of Due Date Amount No. of days from Products

Transactions the base date
(1) (2) (3) (4) (5)
April 23 May 23 52 5 260
May 24 June 24 50 37 1,850
Amount Due to Y 102 Total products 2,110

Excess of Y’s products over X’s = 6,760 – 2,110

= 4,650
Excess amount due to X ` 210 – 102 = ` 108.
Number of days from the base date to the date of settlement is
4,650
= 43 days
108
Hence the date of settlement of the balance is 43 days after May 18 i.e., on June 30. On June 30, Y has to
pay X, ` 108 to clear the account.

? ILLUSTRATION 6
Manoj had the following bills receivables and bills payable against Sohan. Calculate the average due date, when
the payment can be received or made without any loss of interest.
Date Bills Receivable Tenure Date Bills Payable Tenure
` `
01/06/2016 3,000 3 month 29/05/2016 2,000 2 month
05/06/2016 2,500 3 month 03/06/2016 3,000 3 month
09/06/2016 6,000 1 month 9/06/2016 6,000 1 month
12/06/2016 1,000 2 month
20/06/2016 1,500 3 month
15 August, 2016 was a Public holiday. However, 6 September, 2016 was also declared as sudden holiday.

 SOLUTION:
Let us take 12.07.2014 as Base date.
Bills receivable
Due date No. of days from 12.07.2016 Amount Product
04/09/2016 54 3,000 1,62,000
08/09/2016 58 2,500 1,45,000
12/07/2016 0 6,000 0
14/08/2016 33 1,000 33,000
23/09/2016 73 1,500 1,09,500
14,000 4,49,500

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 6.84 PRINCIPLES AND PRACTICE OF ACCOUNTING

Bills payable
Due date No. of days from 12.07.2016 Amount Product
01/08/2016 20 2,000 40,000
07/09/2016 57 3,000 1,71,000
12/07/2016 0 6,000 0
11,000 2,11,000
Excess of products of bills receivable over bills payable = 4,49,500 -2,11,000= 2,38,500
Excess of bills receivable over bills payable = 14,000 – 11,000 = 3,000
Number of days from the base date to the date of settlement is 2,38,500/3,000 = 79.5 (appox.)
Hence date of settlement of the balance amount is 80 days after 12th July i.e. 30th September.
On 30th September, 2016 Sohan has to pay Manoj ` 3,000 to settle the account.

? ILLUSTRATION 7

Mr. Green and Mr. Red had the following mutual dealings and desire to settle their account on the average due
date:

Purchases by Green from Red: `

6th January, 2016 6,000
2nd February, 2016 2,800
31st March, 2016 2,000
Sales by Green to Red:
6th January, 2016 6,600
9th March, 2016 2,400
20th March, 2016 500
You are asked to ascertain the average due date. ( 28 days in feb.)

 SOLUTION

Calculation of Average Due Date

Taking 6th January, 2016 as base date

For Green’s payments
Due date Amount No. of days from the base date i.e. Product
6th Jan. 2016
2016 `
6th January 6,000 0 0
2nd February 2,800 27 75,600
31st March 2,000 84 1,68,000
Total 10,800 2,43,600

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.85

For Red’s payment

2016
6th January 6,600 0 0
9th March 2,400 62 1,48,800
20th March 500 73 36,500
Total 9,500 1,85,300
Excess of Green’s products over Red’s = ` 2,43,600 – ` 1,85,300 = ` 58,300
= ` 10,800 – ` 9,500 = ` 1,300
Number of days from the base date to the date of settlement is 58,300/1,300=45 days (approx.)
Hence, the date of settlement of the balance amount is 45 days after 6th January i.e. on 20th February.
On 20th February, 2016, Green has to pay Red ` 1,300 to settle the account.

w Case 3: Learn calculation of average due date where amount is repaid in Instalments

Calculation of average due date in a case where the amount is lent in one instalment and repayment is done
in various instalments (opposite to what we have done in the first case). The problem takes a different shape.
The procedure for calculating average due date can be summarized as under:

Step 1: Calculate number of days/monthly/years from the date of lending money to the date of each
repayment.
Step 2: Find the total of such days/months/years.
Step 3: Quotient will be the number of days/months/years by which average due date falls away from date
of commencement of loan.
As explained earlier, if instalment are same, we can use Simple mean concept i. Divide days by number of
items and no need for product.
Thus, the formula for the average due date can be written as under:

Sum of days / months / Years from the date of Lending

Average due date = Date of Loan + to the date of repayment of each instalment
Number of instalments

? ILLUSTRATION 8

` 10,000 lent by Dass Bros. to Kumar & Sons on 1st January, 2011 is repayable in 5 equal annual instalments
commencing on 1st January, 2012. Find the average due date and calculate interest at 5% per annum, which
Dass Bros. will recover from Kumar & Sons.

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 6.86 PRINCIPLES AND PRACTICE OF ACCOUNTING

 SOLUTION
Due date No. of years from 1 Jan 2011
1Jan 2011 0
1Jan 2012 1
1Jan 2013 2
1Jan 2014 3
1Jan 2015 4
1Jan 2016 5

Average=5+4+3+2+1/5=3 years

Sum of the number of years / months / days from

the date of lending to the date of repayment of each instalment
Average due date = Date of Loan +
Number of instalments
1+ 2 + 3 + 4 + 5
= Jan. 1, 2011 +
5
= Jan. 1, 2011+ 3 years
= 1st Jan., 2014
Interest at a certain rate on the instalments paid from the date of payment to any fixed date will be the same
as on ` 10,000 (if lent on 1st Jan., 2014 to that fixed date). There will be no loss to either party. Supposing rate
of interest is 5% p.a. and date of settlement is 31st Dec., 2012 then calculation of interest by product method
from both parties’ point of view will be as follows:
Dass Bros. pays interest as follows:

Amount Paid on Money used by Dass Bros upto 31st Dec. 2016 Product
` `
2,000 1st Jan. 2012 5 Years 10,000
2,000 1st Jan. 2013 4 Years 8,000
2,000 1st Jan. 2014 3 Years 6,000
2,000 1st Jan. 2015 2 Years 4,000
2,000 1st Jan. 2016 1 Year 2,000
30,000
` 30,000 x 5
Interest at 5% p.a. on ` 30,000 for one year. = = ` 1,500
100

Dass Bros. will receive interest (if given on 1st Jan., 2014 on ` 10,000 from average due date to 31st Dec.,
5 x 3 x ` 10,000
2016, i.e., for 3 years at 5% p.a. = = ` 1,500
100
From the above, it can be concluded that if the borrower pays ` 2,000 yearly from 1st Jan., 2012 for 5 years
and if the lender gives ` 10,000 on 1st Jan., 2014 then both will charge same interest from each otherThere
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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.87

is no loss to any of the parties. But actually lender gives ` 10,000 on 1st Jan., 2011, therefore, he has given
loan 3 years in advance and will charge interest on ` 10,000 for 3 years.

` 10,000 x 5 x 3
Interest = = ` 1,500 (to be charged by Dass Bros.)
100
Case 4: Learn Calculation of average due date for determining interest on drawings
In the case of drawings also, amount is drawn by the owners of business on various dates but it may settled
on one day. It should be noted that, when different amounts are due on different dates, but they are
ultimately settled on one day the interest may be calculated by means of Average Due Date. When interest
is chargeable on drawings, and drawings are on different dates, interest may be calculated on the basis of
Average Due Date of drawings determined on the basis given above. An illustration is given below to help
in understanding the same:

? ILLUSTRATION 9

A and B, two partners of a firm, have drawn the following amounts from the firm in the year ending 31st March,
2015:

A Date B
Date
` `
1 July
st
500 12 June
th
1,000
30 September
th
800 11th August 500
1st November 1,000 9th February 400
28th February 400 7th March 900
Interest at 6% p.a. is charged on all drawings. Calculate interest chargeable by using (i) ordinary system
(ii) Average due date system. (assume 1 year = 365 days)

 SOLUTION

(i) Ordinary System :

A 500 for 9 months = 4,500 for 1 month
800 for 6 months = 4,800 for 1 month
1,000 for 5 months = 5,000 for 1 month
400 for 1 month = 400 for 1 month
14,700 for 1 month
14,700 @ 6% for 1 month = 1/2% of 14,700
= ` 73.50
B 1,000 for 292 days = 2,92,000
500 for 232 days = 1,16,000
400 for 50 days = 20,000
900 for 24 days = 21,600
4,49,600
© The Institute of Chartered Accountants of India
 6.88 PRINCIPLES AND PRACTICE OF ACCOUNTING

6 1
4,49,600 x x = ` 73.91
100 365

(ii) Average Due Date System:

(a) Taking 1st July as the base date (O-day)

Dates ` Months from O-day Products
1st July 500 0 0
30th September 800 3 2,400
A 1st November 1,000 4 4,000
28th February 400 8 3,200
2,700 9,600
9,600
Average Due Date = months from 1st July. i.e., 3.556 months i.e. October 17th.
2,700
Interest is chargeable from October 17 to March 31 i.e. 5.444 months

6 5.444
2,700 x x = ` 73.49
100 12

Or,
Taking 1st April as the base date (O-day):
Dates ` Months from O-day Products
A 1st July 500 3 1,500
30th September 800 6 4,800
1st November 1,000 7 7,000
28th February 400 11 4,400
2,700 17,700
17,700
Average Due Date = months from 1st April. i.e. 6.556 months i.e. 17th October.
2,700
Interest is chargeable from October 17 to March 31 i.e. 5.444 months.
6 5.444
2,700 x x = ` 73.49
100 12

(b) Taking 12th June as the base date (Zero-day)

Dates ` Days from O-day Products
B 12th June 1,000 0 0
11th August 500 60 30,000
9th February 400 242 96,800
7th March 900 268 2,41,200
2,800 3,68,000
3,68,000
Average Due Date = days from 12th June . i.e. 131 days.
2,800

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.89

June 18
July 31
Aug. 31
Sept. 30
110
131 days -110 days i.e. 21st October
So, interest is chargeable from 21st October to 31st March i.e. for 161 days.

6 161
2,800 x x = ` 74.10
100 365
The Differences in amounts in the two systems (1) and (2) are due to approximation.

SUMMARY
w Average Due Date is one on which the net amount payable can be settled without causing loss of
interest either to the borrower or the lender.
w It is used in various cases like:
(i) Calculation of interest on drawings of partners.
(ii) Cancellation of various bills of exchange due on different dates and issuance of a Single bill.
(iii) Amount lent in one instalment and repayable in various instalments.
w When the amount is lent in various instalments then average due date can be calculated as :

Total [Amount x No. of days from base date to due date

Average due date = Base date
Total amounts
w When interest is chargeable on drawings, and drawings are on different dates, interest may be calculated
on the basis of Average Due Date of drawings.
w Average due date in a case where the amount is lent in one instalment and repayment is done in various
instalments will be:
Sum of days/months/years from the date of lending to
Average due date = Date of Loan + the date of repayment of each instalments
Total amounts

Every promissory note or bill of exchange (other than those payable on demand or at sight or on
presentment) falls due on the third day after on which it is expressed to be payable. This exempted
period of three days is called days of grace.

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 6.90 PRINCIPLES AND PRACTICE OF ACCOUNTING

TEST YOUR KNOWLEDGE

Multiple Choice Questions

1. If payment is made on the average due date it results in-

(a) Loss of interest to the creditor.
(b) Loss of interest to the debtor.
(c) No loss of interest to either of them.
2. A mean date is calculated
(a) In connection with the settlement of contra accounts.
(b) For a lump sum payment.
(c) For several payments on different dates.
3. If payment is made after average due date, the party entitled to interest is
(a) Creditor (b) Debtor (c) Bank
4. When due date is a public holiday, then the due date will be.
(a) Succeeding business day
(b) Preceding business day
(c) Due date will not change and will remain same.
5. A Bill due on 29th January, 2015 is made payable at one month after date. The due date of instrument
(a) 28th February, 2015. (b) 29th February, 2015. (c) 3rd March, 2015.
Theoretical Questions
1. Define Average Due Date.
2. List out the various instances when Average Due Date can be used.
Practical Questions
Q1 Mr. Yash and Mr. Harsh are partners in a firm. They had drawn the following amounts from the firm
during the year ended 31.03.2016:
Date Amount Drawn by
` `
01.05.2015 75,000 Mr. Yash
02.07.2015 20,000 Mr. Yash
15.08.2015 60,000 Mr. Harsh
31.12.2015 50,000 Mr. Harsh
04.03.2016 75,000 Mr. Harsh
31.03.2016 15,000 Mr. Yash

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 ACCOUNTING FOR SPECIAL TRANSACTIONS 6.91

Interest is charged @ 10% p.a. on all drawings. Calculate interest chargeable from each partner by using
Average due date system. (Consider 1st May as base date)
Q2 Anand purchased goods from Amirtha, the average due date for payment in cash is 10.08.2016 and the
total amount due is ` 67,500. How much amount should be paid by Anand to Amirtha, if total payment
is made on following dates and interest is to be considered at the rate of 12% p.a.
(i) On average due date.
(ii) On 25th August, 2016.
(iii) On 30th July, 2016.

ANSWERS/HINTS
MCQs
1. (c) 2. (c) 3. (a) 4. (b) 5. (c)
Theoretical Questions
1. In business enterprises, many receipts and payments by and from a single party may occur at different
points of time. To simplify the calculation of interest involved for such transactions, the idea of average
due date has been developed. Average Due Date is a break-even date on which the net amount payable
can be settled without causing loss of interest either to the borrower or the lender.
2. Few instances where average due date can be used:
(i) Calculation of interest on drawings made by the proprietors or partners of a business firm at
several points of time.
(ii) Settlement of accounts between a principal and an agent.
(iii) Settlement of contra accounts, that is, A and B sell goods to each other on different dates.
Practical Questions
Answer 1
Calculation of Interest chargeable from Partners
Taking 1st May as the base date

Dates Amount (`) Days from 1st May Products (`)

Yash 1.5.2015 75,000 0 0
2.7.2015 20,000 62 12,40,000
31.3.2016 15,000 334 50,10,000
1,10,000 62,50,000

62,50,000
Average Due Date = days from 1st May. i.e 57 days
1,10,000
= 27thJune
Interest is chargeable for Yash from 27th June to March 31 i.e. 277 days
` 1,10,000 x 10% x 277/365 = ` 8,348

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 6.92 PRINCIPLES AND PRACTICE OF ACCOUNTING

Dates ` Days from 1 May Products (`)

Harsh 15.8.2015 60,000 106 63,60,000
31.12.2015 50,000 244 1,22,00,000
4.3.2016 75,000 307 2,30,25,000
1,85,000 4,15,85,000
4,15,85,000
Average Due Date = days from 1 May = 225 days.
1,85,000
= 12th Dec.
Interest is chargeable for Harsh from 12 December to 31st March i.e. for 109 days.
10 109
` 1,85,000 x x = ` 5,525
100 365
Thus, interest amounting ` 8,348 will be charged from Yash and amount of ` 5,525 will be charged from
Harsh.
Answer 2
A B C D=B ±C
Principal Interest from Average Due Date to Actual date of Payment Total amount
Amount to be paid
(i) Payment on average due date
` 67,500 12 0
` 67,500 x x =0
100 365 ` 67,500
(ii) Payment on 25th Aug. 2016
` 67,500 12 15
` 67,500 x x = 333
100 365 ` 67,833
Interest to be charged for period of 15 days from 10.8.2016 to
25th Aug. 2016
(iii) Payment on 30 July, 2016
th

` 67,500 12 (11)
` 67,500 x x = (244)
100 365 ` 67,256
Rebate has been allowed for unexpired credit period of 11
days from 30.7.2016 to 10.8.2016

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