(a) 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
Calculate: (i) Fixed assets. (ii) Current liabilities: (iii) Current assets: (iv) Working capital (v) Average stock
(a) (i) Authorized capital refers to the maximum amount of money that a company is legally authorized to raise from the sale of shares. This is the amount of money that the company's founders have agreed to raise in order to finance its operations.
(ii) Liquid capital refers to the assets of a company that are easily convertible into cash. These assets are used to pay the company's debts and obligations as they come due. Examples of liquid assets include cash, short-term investments, and accounts receivable.
(b)
(i) Fixed assets
| |
D |
Equipment |
150,000 |
Motor van |
300,000 |
| Fixtures & Fittings |
40, 000 |
| |
490, 000 |
ii) Current Liabilities
| Creditors |
120,000 |
| Overdraft |
45,000 |
| |
165,000 |
iii) current assests
Stock |
25,000 |
| Debtors |
150,000 |
| Cash at bank |
25,000 |
| |
200,000 |
(iv)
Working capital is the difference between a company's current assets and its current liabilities. It is a measure of a company's ability to meet its short-term obligations. To calculate the working capital for Bandin and Bachur Partnership, we subtract the current liabilities (165,000) from the current assets (200,000), resulting in working capital of 35,000.
(v) Average stock is the average value of a company's inventory over a specified period of time. To calculate the average stock for Bandin and Bachur Partnership, we add the stock as at March 1st (30,000) and the stock as at March 31st (25,000) and divide by 2, resulting in an average stock of 27,500.