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JAMB Principles of Accounts 2008 Question 46

Question 46

Interpretation of Accounts

Uju Nig. Ltd. Balance Sheet (Extract)
Capital ₦200 000; Net profit ₦50 000; 5% debenture ₦100 000; Creditors ₦80 000; Total ₦430 000
Land and building ₦250 000; Stock ₦20 000; Debtors ₦50 000; Bank ₦10 000; Total ₦430 000
Which of the following is true of Uju Nig. Ltd?

  1. A.It is a highly geared company
  2. B.It has no liquidity problem in the short term
  3. C.It is adequately secured in fixed assets
  4. D.It's working capital is zero
Show the answer and explanation

Answer: D (It's working capital is zero)

Explanation

Current assets 20 000 + 50 000 + 10 000 = ₦80 000 equal current liabilities (creditors) ₦80 000, so working capital is zero.