Three individuals are considering forming a partnership to operate a metal fabricating shop. It is anticipated that significant contributions of capital will be necessary during the first 18 months of operation and that operating losses will likely be incurred during the first 12 months of operation. The three individuals have asked you to respond to each of the following questions they have regarding a partnership agreement:

1. It is anticipated that one of the partners will not be active in the day-to-day conduct of the business but will be a major contributor of capital. Assuming that interest on invested capital will be one of the profit allocation provisions, what would be the best way to measure the capital upon which interest will be calculated?