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

Emeka Enterprise presented the following financial balances at the end of its accounting year:

- Equipment and Motor Vehicles: ₦1,400,000\text{₦}1,400,000
- Inventory: ₦350,000\text{₦}350,000
- Trade Debtors: ₦180,000\text{₦}180,000
- Cash at Bank: ₦120,000\text{₦}120,000
- Trade Creditors: ₦220,000\text{₦}220,000
- Accrued Expenses: ₦80,000\text{₦}80,000
- 10% Long-term Debentures: ₦500,000\text{₦}500,000

What is the value of the enterprise's Capital Owned?

  1. ₦1,250,000\text{₦}1,250,000Answer
  2. B
    ₦1,550,000\text{₦}1,550,000
  3. C
    ₦1,750,000\text{₦}1,750,000
  4. D
    ₦2,050,000\text{₦}2,050,000

Answer

The correct Capital Owned is ₦1,250,000\text{₦}1,250,000.
The correct answer derives from calculating Total Assets (₦2,050,000\text{₦}2,050,000) minus Total Liabilities (₦800,000\text{₦}800,000), yielding ₦1,250,000\text{₦}1,250,000 as the net capital belonging to the owner.

Step-by-Step Solution

1
Calculate Total Assets
Total Assets = Fixed Assets + Current Assets = ₦1,400,000+(₦350,000+₦180,000+₦120,000)=₦2,050,000\text{₦}1,400,000 + (\text{₦}350,000 + \text{₦}180,000 + \text{₦}120,000) = \text{₦}2,050,000
Total assets comprise all fixed assets and current assets owned by the enterprise.
2
Calculate Total Liabilities
Total Liabilities = Current Liabilities + Long-term Liabilities = (₦220,000+₦80,000\text{₦}220,000 + \text{₦}80,000) + ₦500,000=₦800,000\text{₦}500,000 = \text{₦}800,000
Total liabilities combine short-term obligations (creditors and accrued expenses) and long-term debt (debentures).
3
Compute Capital Owned
Capital Owned = Total Assets - Total Liabilities = ₦2,050,000−₦800,000=₦1,250,000\text{₦}2,050,000 - \text{₦}800,000 = \text{₦}1,250,000
Capital Owned (Net Assets / Owner's Equity) represents the net worth remaining after deducting all external obligations from total assets.

Key Concept

Capital Owned (Net Worth / Owner's Equity)
Estimated Time:2m 0s
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Topics

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

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