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Difficulty: Very hardTypes and Sources of Business Capital

Apex Enterprises Plc was registered with an authorized share capital of ₦12,000,000\text{₦}12,000,000 consisting of ordinary shares of ₦1.50\text{₦}1.50 each. The company issued 60%60\% of its authorized shares to the public. The board of directors made a first call of ₦0.80\text{₦}0.80 per share and a second call of ₦0.40\text{₦}0.40 per share on all issued shares. At the end of the financial period, holders of 250,000250,000 shares defaulted on the second call, while holders of 150,000150,000 shares paid the uncalled balance of ₦0.30\text{₦}0.30 per share in advance. What is the total value (in ₦\text{₦}) of the company's paid-up share capital?

Answer: 5660000 ₦

Answer

The paid-up share capital of Apex Enterprises Plc is ₦5,660,000\text{₦}5,660,000.
Paid-up capital represents the actual portion of called-up share capital that has been received from shareholders. It is derived by subtracting calls-in-arrears (₦100,000\text{₦}100,000) from the total called-up capital (₦5,760,000\text{₦}5,760,000), yielding ₦5,660,000\text{₦}5,660,000. Money paid in advance of calls (calls-in-advance) is treated as a short-term liability to the company and is excluded from paid-up share capital.

Step-by-Step Solution

1
Calculate the total number of authorized ordinary shares
8,000,000 shares
Authorized capital divided by the nominal value per share gives the total registered shares: ₦12,000,000₦1.50=8,000,000 shares\frac{\text{₦}12,000,000}{\text{₦}1.50} = 8,000,000\text{ shares}.
2
Determine the number of issued shares
4,800,000 shares
The company issued 60%60\% of its authorized share capital: 60%×8,000,000=4,800,000 shares60\% \times 8,000,000 = 4,800,000\text{ shares}.
3
Calculate total called-up capital
₦5,760,000
Total calls made per share equal ₦0.80+₦0.40=₦1.20\text{₦}0.80 + \text{₦}0.40 = \text{₦}1.20. Multiplying by issued shares yields 4,800,000×₦1.20=₦5,760,0004,800,000 \times \text{₦}1.20 = \text{₦}5,760,000.
4
Calculate calls-in-arrears
₦100,000
Defaulted amount on the second call is 250,000 shares×₦0.40=₦100,000250,000\text{ shares} \times \text{₦}0.40 = \text{₦}100,000.
5
Determine net paid-up capital
₦5,660,000
Paid-up share capital equals Called-up capital minus Calls-in-arrears: ₦5,760,000−₦100,000=₦5,660,000\text{₦}5,760,000 - \text{₦}100,000 = \text{₦}5,660,000. Calls-in-advance are accounted for as current liabilities rather than share capital.

Key Concept

Distinction between Authorized, Issued, Called-up, and Paid-up share capital, including accounting treatment of Calls-in-Arrears and Calls-in-Advance.
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Topics

Types and Sources of Business Capital

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