Ram's capital consists of two components with different time periods:
Initial Capital: Rs. 1,20,000 from 1st Jan 2020 to 31st Dec 2020 = 12 months
Additional Capital: Rs. 50,000 from 1st July 2020 to 31st Dec 2020 = 6 months
Interest is calculated separately for each period using the formula:
Interest = Capital × Rate × 12Time
Interest on Initial Capital:
= 1,20,000 × 10015 × 1212
= 1,20,000 × 0.15
= Rs. 18,000
Interest on Additional Capital:
= 50,000 × 10015 × 126
= 50,000 × 0.15 × 0.5
= Rs. 3,750
Total Interest on Capital for Ram:
= 18,000 + 3,750
= Rs. 21,750
The additional capital introduced on 1st July gets interest only for 6 months (July to December), not for the full year, which is why it's calculated separately with the proportionate time period.