An accounting extract from the books of Kemi Enterprises as at 31 December 2025 reveals th… — JAMB UTME

An accounting extract from the books of Kemi Enterprises as at 31 December 2025 reveals the following balance sheet items:

- Fixtures and Fittings: $\text{₦}450,000$
- Motor Vehicles: $\text{₦}800,000$
- Trade Debtors: $\text{₦}160,000$
- Closing Stock: $\text{₦}190,000$
- Prepaid Rent: $\text{₦}25,000$
- Bank Overdraft: $\text{₦}85,000$
- Trade Creditors: $\text{₦}110,000$
- Accrued Electricity: $\text{₦}20,000$
- 5-Year Mortgage Loan: $\text{₦}350,000$

Calculate the Capital Employed of Kemi Enterprises.

Answer: 1410000 ₦

Answer

The Capital Employed of Kemi Enterprises is ₦1,410,000.

Capital Employed is the total net investment used to generate earnings. It equals Total Assets (₦1,625,000) minus Current Liabilities (₦215,000), which results in ₦1,410,000. Alternatively, it can be computed as Non-current Assets (₦1,250,000) plus Working Capital (₦160,000) = ₦1,410,000.

Step-by-Step Solution

Classify and total Non-current Assets

Total Non-current Assets = ₦450,000 (Fixtures) + ₦800,000 (Motor Vehicles) = ₦1,250,000

Non-current assets are long-term resources owned for business operations lasting more than one accounting period.

Classify and total Current Assets

Total Current Assets = ₦160,000 (Debtors) + ₦190,000 (Stock) + ₦25,000 (Prepaid Rent) = ₦375,000

Current assets are cash or short-term assets expected to be converted into cash within one year.

Classify and total Current Liabilities

Total Current Liabilities = ₦85,000 (Bank Overdraft) + ₦110,000 (Creditors) + ₦20,000 (Accrued Electricity) = ₦215,000

Current liabilities are short-term obligations payable within one year.

Compute Net Current Assets (Working Capital)

Working Capital = ��375,000 - ₦215,000 = ₦160,000

Working capital measures short-term operating liquidity.

Compute Capital Employed

Capital Employed = Non-current Assets + Working Capital = ₦1,250,000 + ₦160,000 = ₦1,410,000

Capital Employed represents the total long-term capital invested in running the business entity.

Key Concept

Capital Employed is calculated as Total Assets minus Current Liabilities, or Non-current Assets plus Net Current Assets (Working Capital). Long-term liabilities are part of total capital employed, not deducted from non-current assets.

Estimated Time:2m 0s

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