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Difficulty: HardCapital Structure Calculations (Working Capital, Capital Employed, Capital Owned)

The financial extract of Danjuma & Sons Enterprises at the close of the trading year reveals the following account balances:

- Premises and Machinery: ₦3,500,000\text{₦}3,500,000
- Inventory (Stock): ₦850,000\text{₦}850,000
- Trade Debtors: ₦450,000\text{₦}450,000
- Bank Overdraft: ₦300,000\text{₦}300,000
- Trade Creditors: ₦500,000\text{₦}500,000
- 10% Long-term Debentures: ₦1,200,000\text{₦}1,200,000

What is the Capital Owned (Proprietor's Capital) of the enterprise in Naira?

Answer: 2800000 ₦

Answer

The Capital Owned of the enterprise is ₦2,800,000.
Capital Owned represents the net equity belonging strictly to the owner. It is calculated by taking Total Assets (Fixed Assets ₦3,500,000 + Current Assets ₦1,300,000 = ₦4,800,000) and subtracting Total Liabilities (Current Liabilities ₦800,000 + Long-term Debentures ₦1,200,000 = ₦2,000,000), giving ₦2,800,000. Alternatively, subtracting long-term liabilities from Capital Employed (₦4,000,000 - ₦1,200,000) yields ₦2,800,000.

Step-by-Step Solution

1
Identify and sum total current assets
Total Current Assets = ₦850,000 + ₦450,000 = ₦1,300,000
Current assets consist of short-term liquid assets such as inventory and trade debtors.
2
Identify and sum total current liabilities
Total Current Liabilities = ₦300,000 + ₦500,000 = ₦800,000
Current liabilities consist of short-term debts due within an accounting year, such as overdrafts and trade creditors.
3
Compute Working Capital
Working Capital = ₦1,300,000 - ���800,000 = ₦500,000
Working capital measures net current assets available for daily operations.
4
Compute Capital Employed
Capital Employed = Fixed Assets (₦3,500,000) + Working Capital (₦500,000) = ₦4,000,000
Capital employed represents total net assets invested in the business.
5
Compute Capital Owned
Capital Owned = Capital Employed (₦4,000,000) - Long-term Liabilities (₦1,200,000) = ₦2,800,000
Capital owned is the owner's net equity, derived by deducting non-current borrowed capital (debentures) from capital employed.

Key Concept

Capital Structure Calculations (Working Capital, Capital Employed, Capital Owned)
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Topics

Capital Structure Calculations (Working Capital, Capital Employed, Capital Owned)

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