A merchant's business records show capital employed of \text{₦}2,200,000, fixed assets of … — JAMB UTME

A merchant's business records show capital employed of $\text{₦}2,200,000$ , fixed assets of $\text{₦}1,500,000$ , a long-term loan of $\text{₦}400,000$ , current liabilities of $\text{₦}250,000$ , trade debtors of $\text{₦}300,000$ , and cash at bank of $\text{₦}150,000$ . What is the value of the merchant's closing inventory (stock) in Naira?

Answer: 500000 ₦

Answer

The value of the merchant's closing inventory is ₦500,000.

Working Capital is calculated as

\text{Capital Employed} - \text{Fixed Assets} = \text{₦}2,200,000 - \text{₦}1,500,000 = \text{₦}700,000

. Total Current Assets is then found by adding Current Liabilities:

\text{₦}700,000 + \text{₦}250,000 = \text{₦}950,000

. Subtracting the known current assets (trade debtors of

\text{₦}300,000

and cash at bank of

\text{₦}150,000

) leaves closing inventory equal to

\text{₦}500,000

. Note that the long-term loan of

\text{₦}400,000

is a non-current liability and does not affect the working capital calculation.

Step-by-Step Solution

Calculate Working Capital from Capital Employed and Fixed Assets

\text{Working Capital} = \text{₦}700,000

Capital Employed equals Fixed Assets plus Working Capital. Rearranging gives Working Capital = Capital Employed - Fixed Assets.

Calculate Total Current Assets

\text{Current Assets} = \text{₦}950,000

Working Capital equals Current Assets minus Current Liabilities. Rearranging gives Current Assets = Working Capital + Current Liabilities.

Deduct trade debtors and cash at bank from total Current Assets to isolate closing inventory

\text{Inventory} = \text{₦}500,000

Current Assets consists of inventory, trade debtors, and cash at bank. Subtracting the known items leaves the inventory value.

Key Concept

Backwards Calculation of Capital Structure and Working Capital Components

Estimated Time:2m 30s

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