When opening balance of capital is not given, the interest on capital is calculated on capital which is calculated as follows:

Capital at the end + drawings - additional Capital Introduced - Profit share during the year

The correct answer is option 1 i.e. Capital at the end + drawings - additional Capital Introduced - Profit share during the year.

Sometimes opening capitals of partners may not be given. In such a situation before the calculation of interest on capital the opening capitals will have to be worked out with the help of partners’ closing capitals by marking necessary adjustments for the additions and withdrawal of capital, drawings, share of profit or loss, if already shown in the capital accounts the partners. Thus, interest on capital is calculated on the opening capital which is calculated as follows- Capital at the end + drawings - additional Capital Introduced - Profit share during the year.