Question

8(a) Explain the following types of capital: (i) Authorized capital; (ii) Liquid capital. (b) The following records were extracted from the books of Bandin and Bachur Partnership as at March 31st,2020: Equipment N150,000; Cash at bank N25,000; Creditors N120,000; Debtors N150,000; Stock as at 1/03/20 N30,000; Motor van N300,000; Fixtures and fittings N40,000; Overdraft N45,000; Stock as at 31/03/20 N25,000. Calculate: (i) Fixed assets; (ii) Current liabilities; (iii) Current assets; (iv) Working capital; (v) Average stock.

Accepted Answer

(a)(i) Authorized capital is the total amount/unit of shares which a limited liability company is given authority to issue for subscription — the maximum unit of shares a company can issue.
(ii) Liquid capital is the amount of asset held in the form of cash or which can be easily converted to cash.
(b)(i) Fixed assets = Equipment + Motor van + Fixtures and fittings = 150,000 + 300,000 + 40,000 = N490,000.
(ii) Current liabilities = Creditors + Overdraft = 120,000 + 45,000 = N165,000.
(iii) Current assets = Cash at bank + Debtors + Closing stock = 25,000 + 150,000 + 25,000 = N200,000.
(iv) Working capital = Current Assets − Current Liabilities = 200,000 − 165,000 = N35,000.
(v) Average stock = (Opening stock + Closing stock) ÷ 2 = (30,000 + 25,000) ÷ 2 = N27,500.

WAEC Commerce 2021 Theory — Question 8

Sign up free to unlock