Interest on Capital Favors Higher Investor

Steps:

• Raj contributed $40,000 capital vs. Suni's$20,000, creating unequal investment.
• Both share work 50/50, so equal effort but unequal funding.
• Partnership agreement can allocate interest on capital proportional to contributions.
• This rewards Raj's larger investment without affecting work share.

Why A is correct:

• Interest on capital is computed as capital amount × interest rate, directly benefiting the partner with higher capital by increasing their profit share.

Why the others are wrong:

• B: Interest on drawings deducts from the partner's share based on withdrawal amount; Raj's higher drawings ($5,000 vs.$3,500) would penalize him more.
• C: Limiting salaries caps total compensation, restricting potential gains for both without favoring Raj's capital advantage.
• D: Partnership salaries typically allocate based on work contribution (50/50 here), ignoring Raj's superior capital input.

Final answer: A