Commerce WASSCE (SC), 2021

Question 8

 

  1. Explain the following types of capital:
    (i)         Authorized capital;
    (ii)        Liquid capital.

(b)        The following records were extracted from the books of Bandin and Bachur Partnership as at March 31st, 2020.
D
Equipment                                                       150,000
Cash at bank                                                     25,000
Creditors                                                         120,000
Debtors                                                           150,000
Stock as at 1/03/20                                            30,000
Motor van                                                       300,000
Fixtures and fittings                                          40,000
Overdraft                                                          45,000
Stock as at 31/03/20                                          25,000

Calculate:

  1. Fixed assets;
  2. Current liabilities;
  3. Current assets;
  4. Working capital;
  5. Average stock.

Observation

Many candidates attempted this question and their performance was good. However, some candidates used lost some points for using the wrong currency symbols.

The expected responses are:

            (a)        (i)         Authorised capital
            This is capital which is stated in the Memorandum of Association of a company   and it is the maximum amount a company is allowed to raise.             

            (ii)        Liquid capital
This is capital that is made up of assets that can easily be converted into cash.                                                                                                       
            (b)        (i)        Fixed  assets                                          D
Equipment                                           150,000
Motor van                                           300,000
                                    Fixtures and fittings                              40,000
                                                                                                490,000                                              

                        (ii)       Current liabilities                                  D
Creditors                                             120,000
                                    Overdraft                                              45,000
                                                                                                165,000                      

                        (iii)      Current assets                                         D
Stock                                                     25,000
Debtors                                               150,000
                                    Cash at bank                                         25,000
                                                                                                200,000                

                        (iv)       Working capital = Current assets – Current liabilities

Current assets = D25,000 + D150,000 + D25,000 = D200,000
Current liabilities = D120,000 + D45,000 = D165,000
Therefore, working capital = D200,000 – D165,000 = D35,000

 

                        (v)       Average stock =  Opening stock + Closing stock
2

                                                   = D30,000 + D25,000 
2
                                                   = D55, 000
2
= D27, 500