Achieng and Barasa are in partnership. Capitals: Achieng KSh 600,000 and Barasa KSh 400,000. The agreement gives interest on capital of 5%, a salary of KSh 40,000 to Achieng, and the balance of profit equally. Profit for the year is KSh 200,000. What is Achieng's total share?

Answer and explanation

Correct answer: C. KSh 125,000

  1. Step 1: Interest on capital: Achieng 30,000 and Barasa 20,000. Step 2. Profit left to share = 200,000 - 30,000 - 20,000 - 40,000 = 110,000. Step 3. Achieng's share = interest 30,000 + salary 40,000 + half of the balance 55,000 = KSh 125,000. Answer: KSh 125,000. Why not the others: KSh 100,000: That shares the whole profit equally and ignores the agreement. KSh 85,000: That leaves out the salary. KSh 95,000: That leaves out the interest on capital.

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