Theory question 107
Business CalculationsCommerce 2 (essay, answer five questions only)
(a) Distinguish between Authorized Capital and Called-up Capital
(b) Use the following information to answer the questions that follow: XYZ Limited is a trading company. The following transactions took place in the month of February:
Purchase of goods – 32 suitcases at ₦3,500 each; 42 shirts at ₦800 each
Additional information:
(i) The cost of transporting goods to the firm's premises was ₦2,500
(ii) Two workers of the firm were paid wages and salaries of ₦4,500 each
(iii) Total sales revenue was ₦180,000
You are required to calculate the:
(a) gross profit
(b) net profit
Show the model answer
(a) Authorised capital is the maximum share capital a company may issue, stated in its memorandum; called-up capital is the part of issued capital the company has asked shareholders to pay so far.
(b) Purchases = 32 × 3,500 + 42 × 800 = 112,000 + 33,600 = ₦145,600; add carriage inwards 2,500 = cost of goods sold ₦148,100 (all goods sold).
Gross profit = 180,000 − 148,100 = ₦31,900.
Net profit = 31,900 − wages (2 × 4,500 = 9,000) = ₦22,900.
Carriage on goods bought is added to cost; wages are deducted for net profit.