The relationship between Opening and Closing Capital:
Closing Capital = Opening Capital + Additional Capital − Withdrawal of Capital + Interest on Capital − Drawings − Interest on Drawings + Share of Profit − Share of Loss
Rearranging to find Opening Capital:
Opening Capital = Closing Capital − Additional Capital + Withdrawal of Capital − Interest on Capital + Drawings + Interest on Drawings − Share of Profit + Share of Loss
Items that increased capital during the year must be subtracted:
- Additional Capital → Subtract
- Interest on Capital → Subtract
- Share of Profit → Subtract
Items that decreased capital during the year must be added back:
- Withdrawal of Capital → Add
- Drawings → Add
- Interest on Drawings → Add
- Share of Loss → Add
Opening Capital = Closing Capital − Addition to the Capital + Withdrawal of Capital − Interest on Capital + Drawings + Interest on Drawings + Share of Loss − Share of Profit
This matches Option 3.