Theory question 108
Business Calculations(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.
D
Equipment 150,000
Cash at bank 25,000
Creditors 120,000
Debtors 150,000
Stock as at 1/03/20 30,000
Motor van 300,000
Fixtures and fittings 40,000
Overdraft 45,000
Stock as at 31/03/20 25,000
Calculate: (i) Fixed assets; (ii) Current liabilities; (iii) Current assets; (iv) Working capital; (v) Average stock.
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(a)(i) Authorised (nominal/registered) capital: the maximum share capital a company is allowed to raise, as stated in its Memorandum of Association.
(ii) Liquid capital: cash and assets that can quickly be turned into cash (cash in hand, cash at bank, debtors) without loss.
(b)(i) Fixed assets = Equipment 150,000 + Motor van 300,000 + Fixtures and fittings 40,000 = D490,000
(ii) Current liabilities = Creditors 120,000 + Overdraft 45,000 = D165,000
(iii) Current assets = Cash at bank 25,000 + Debtors 150,000 + Closing stock 25,000 = D200,000
(iv) Working capital = Current assets − Current liabilities = 200,000 − 165,000 = D35,000
(v) Average stock = (30,000 + 25,000) ÷ 2 = D27,500
Use the closing stock (31/03/20) in current assets; use both stocks for average stock.