Capital - Past Questions Review (Waec, Jamb, Cambridge O' Level)

Questions:

1

2

3

4

5

6

7

8

9

10

11

12

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14

Question 1

A public limited company can raise long-term loans through

• the capital market
• the money market
• bank overdrafts
• discount houses

Explanation

Capital market is a place where long term loans are traded

Question 2

The financial index which compares current assets directly with current liabilities is known as current

• turnover
• capital
• ratio
• balance

Explanation

The current ratio, also known as the working capital ratio, measures the capability of a business to meet its short-term obligations that are due within a year. The ratio considers the weight of total current assets versus total current liabilities. It indicates the financial health of a company and how it can maximize the liquidity of its current assets to settle debt and payables. The current ratio formula (below) can be used to easily measure a company’s liquidity.

Question 3

The total amount that a company is allowed to raise according to its memoradum of association is known as

• issued capital
• authorized capital
• called-up capital
• paid-up capital

Explanation

The Memorandum of Association is the document that contains the fundamental conditions upon which a company is allowed to operate. This document contains the name of the company, the purpose for which the company was created, if the company is limited by shares, the total amount of money that has been raised by the company in exchange for shares and the particulars of shareholders of the company.

The purpose of this document is to enable members, creditors and anyone who deals with the company to know what the company is allowed to operate in.

Question 4

A public limited liability company having a nominal capital made up of 200 000 ordinary shares of 50k each decided to issue 50% of it to the public What is the authorized capital?

• N40, 000
• N50, 000
• N100, 000
• N200, 000

Explanation

Authorized capital is also known as nominal capital
The total share is 200,000 each costing 50k(thats half amount for each share)

200,000 x N0.50 = N100,000

Question 5

The form of capital which is easily transferred into the form desired is known as?

• working capital
• liquid capital
• circulating capital
• capital employed

Explanation

A liquid asset is an asset that can easily be converted into cash in a short amount of time. Liquid assets include things like cash, money market instruments, and marketable securities.

Both individuals and businesses can be concerned with tracking liquid assets as a portion of their net worth. For the purposes of financial accounting, a company’s liquid assets are reported on its balance sheet as current assets.

Question 6

A company has an authorized capital of 40 million at N1 per share, out of which 32 million shares have been issued and fully paid-up.The remaining 8 million shares have

• been issued but have not been paid up
• been applied for but not issued
• not been paid-up
• not yet been issued

Explanation

Authorized capital is the maximum amount that can be raised. A company can, at any time, issue new shares up to the full amount of authorized share capital. Also called subscribed capital, or subscribed share capital. It is the face value of the shares that have been issued to the shareholders. When part of this capital is raised from the public, its issued.

Question 7

The share capital value that forms part of the balance sheet total is the

• issued share
• called-up capital share capital
• authorised share capital
• paid-up share capital

Explanation

Issued share capital is simply the monetary value of the shares of stock a company actually offers for sale to investors.

It is the value of capital generated from the public.

Question 8

A company has an authorized capital of 40 million at N1 per share, out of which 32 million shares have been issued and fully paid-up.The remaining 8 million shares have

• been issued but have not been paid up
• been applied for but not issued
• not been paid-up
• not yet been issued

Explanation

Authorized capital is the maximum amount that can be raised. A company can, at any time, issue new shares up to the full amount of authorized share capital. Also called subscribed capital, or subscribed share capital. It is the face value of the shares that have been issued to the shareholders. When part of this capital is raised from the public, its issued.

Question 9

The difference between total current assets and total current liabilities of a business is known as

• quick ratio
• liquidity ratiio
• working capital
• circulating capita

Explanation

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities.

Gross working capital is equal to current assets. Working capital is calculated as current assets minus current liabilities.

If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit and Negative Working capital.

Working capital assesses a company's ability to pay its current liabilities with its current assets.

Working capital is needed to find out the financial health of a firm within a year. This means the capacity to clear its debt within a year

Question 10

Capital as a factor of production can be used as

• money that is regarded as asset
• goods that are useful in business
• input for further production
• service that provide satisfaction

Explanation

Question 11

Debentures differ from shares in that

• they are secured on the company’s assets
• ownership is open to the public
• they form part of the capital of the business
• rewards are usually paid out of profit.

Explanation

A debenture is a medium to long-term loan, issued to a company by an investor.
Think of it as an unsecured loan that is supplied in good faith –
unlike UK debentures, the loan is not backed up by physical assets; only by the company's good reputation in the eyes of the investor.

Question 12

The total of the share capital which a company would be allowed to issue is known as

• called-up capital
• paid up capital
• nominal capital
• issued capital

Explanation

Nominal capital is another name for Authorized capital

Question 13

• source of short-term finance to companies is
  
• Share capital
• Debentures
• Retained earnings
• Corporate tax

Explanation

Short-term financing may be defined as the credit or loan facility extended to an enterprise for a period of less than one year. Short-term financing is a credit arrangement provided to an enterprise to bridge the gap between income and expenses in the short run.

It helps the enterprise to manage its current liabilities, for a period of less than one year.

It ensures the sufficient liquidity in the enterprise. i.e smooth functioning of the enterprise’s day-to-day activities.
Examples are

Commercial Paper

Unsecured Short-Term Bank Loans

Secured Forms of Credit

Customer Advances

Installment Credit

Bank Loan

Cash Credit

Certificates of Deposit

Bill of Exchange

Factoring

Bank Overdraft.

Retained Profit

Question 14

Authorized share capital is also known as

• called-up share capital
• paid-up share capital
• registered share capital
• issued share capital
  

Explanation

Authorised share capital is the maximum amount of capital that a company can issue to the general public
The maximum amount is stated in its memorandum of association.
At times, the authorised share capital can also be called

authorised stock

authorised shares

authorised capital stock

registered capital

nominal capital