Capital EmployedThe balance sheet of Blaze Limited is given below. Balance Sheet: Current YearAssets Amount Liabilities and Equity AmountMachinery $20,000.00 Share capital $10,000.00Inventory $2,000.00 Long-term debt $10,000.00Accounts receivable $1,000.00 Short-term debt $3,000.00Cash $2,000.00 Accounts payable $2,000.00Total assets $25,000.00 Total liabilities and equity $25,000.00Calculate the capital employed by the company. $20,000$21,000$27,000$33,000
Question
Capital EmployedThe balance sheet of Blaze Limited is given below. Balance Sheet: Current YearAssets Amount Liabilities and Equity AmountMachinery 10,000.00Inventory 10,000.00Accounts receivable 3,000.00Cash 2,000.00Total assets 25,000.00Calculate the capital employed by the company. 21,00033,000
Solution
Capital employed is calculated as total assets minus current liabilities, or as shareholders' equity plus long-term liabilities.
From the balance sheet of Blaze Limited, we have:
Total Assets = 3,000.00 + 5,000.00
So, Capital Employed = Total Assets - Current Liabilities = 5,000.00 = $20,000.00
Therefore, the capital employed by the company is $20,000.
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