Interest on capital favors Raj's higher investment under equal profit sharing

Steps:

• Compare capitals: Raj $40,000 vs. Suni$20,000, so Raj invested twice as much.
• Note profit-sharing: 50-50 agreement ignores capital differences without adjustments.
• Evaluate options: Interest on capital credits based on investment amounts, boosting Raj's total share.
• Assess benefit: In 2020, this adjustment rewards Raj's larger contribution, increasing his profits.

Why A is correct:

• Interest on capital is calculated as rate × capital balance, giving Raj higher credit (e.g., 10% yields $4,000 vs. Suni's$2,000), effectively making his share >50% before equal division.

Why the others are wrong:

• B: Interest on drawings charges both equally ($5,000 each), deducting the same amount from Raj's share, providing no advantage.
• C: Limits on drawings restrict withdrawals equally or proportionally, constraining Raj without favoring his higher capital.
• D: Partnership salaries are typically fixed and equal under 50-50 sharing, ignoring capital differences and not benefiting Raj specifically.

Final answer: A