(a)Distinguish between Authorized Capital and Called-up Capital (b) Use the following information to answer the questions that follow: XYZ Limited is a trad...
Question 1 Report
(a)Distinguish between Authorized Capital and Called-up Capital
(b) Use the following information to answer the questions that follow: XYZ Limited is a trading company. The following transactions took place in the month of February:
Purchase of goods -
32 suitcases at N3,500 each
42 shirts at N800 each.
Additional information:
(i) The cost of transporting goods to the firm's premises was #2,500
(ii) Two workers of the firm were paid wages and salaries of 4,500 each.
(iii) Total sales revenue was N180,000. You are required to calculate the: (a) gross profit (b) net profit.
Answer Details
(a) Authorized Capital vs Called-up Capital
Authorized capital (also called nominal or registered capital) is the maximum amount of share capital that a company is allowed to raise, as stated in its Memorandum of Association. Called-up capital is that part of the issued capital which the company has actually demanded (called up) from shareholders to be paid. Authorized capital sets the legal ceiling, while called-up capital is the amount shareholders are presently required to pay.
(b) Calculations
Cost of purchases:
- Suitcases: 32 × N3,500 = N112,000
- Shirts: 42 × N800 = N33,600
- Total purchases = 112,000 + 33,600 = N145,600
Add carriage inwards (transport to premises) = N2,500
Cost of goods sold = 145,600 + 2,500 = N148,100
(a) Gross profit
Gross profit = Sales - Cost of goods sold = 180,000 - 148,100 = N31,900
(b) Net profit
Wages and salaries = 2 workers × N4,500 = N9,000
Net profit = Gross profit - Expenses = 31,900 - 9,000 = N22,900
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