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What is their interest on capital
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Step-by-step solution
4 stepsLet's calculate the interest on capital for Richard and Peter. The financial year runs from 1 July 2016 to 30 June 2017. The interest rate is 10% per year.
Determine Richard's capital balances throughout the year.
Richard's capital at 30 June 2017 is R200 000. He decreased his capital by R50 000 on 31 December 2016.
- Capital from 1 July 2016 to 31 December 2016 (6 months): R200 000 (current balance) + R50 000 (decrease) = R250 000
- Capital from 1 January 2017 to 30 June 2017 (6 months): R200 000
Calculate Richard's interest on capital.
Interest = (Capital for period 1 × Rate × Time) + (Capital for period 2 × Rate × Time)
Interest for Richard = (R250 000 × 10% × 6/12) + (R200 000 × 10% × 6/12)
Interest for Richard = (R250 000 × 0.10 × 0.5) + (R200 000 × 0.10 × 0.5)
Interest for Richard = R12 500 + R10 000
Interest for Richard = R22 500Determine Peter's capital balances throughout the year.
Peter's capital at 30 June 2017 is R200 000. He increased his capital by R50 000 on 1 January 2017.
- Capital from 1 July 2016 to 31 December 2016 (6 months): R200 000 (current balance) - R50 000 (increase) = R150 000
- Capital from 1 January 2017 to 30 June 2017 (6 months): R200 000
Calculate Peter's interest on capital.
Interest = (Capital for period 1 × Rate × Time) + (Capital for period 2 × Rate × Time)
Interest for Peter = (R150 000 × 10% × 6/12) + (R200 000 × 10% × 6/12)
Interest for Peter = (R150 000 × 0.10 × 0.5) + (R200 000 × 0.10 × 0.5)
Interest for Peter = R7 500 + R10 000
Interest for Peter = R17 500Final Answer:
Richard's interest on capital is R22 500.
Peter's interest on capital is R17 500.
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