GCEFinancial AccountingCompany Accounts2023

A company's capital structure shows: Ordinary share capital ₦2,000,000; General reserve ₦500,000; Share premium ₦300,000; Retained earnings ₦700,000; 12% Debentures ₦1,000,000. What is the total shareholders' equity?

A₦4,500,000
B₦3,500,000CORRECT
C₦2,800,000
D₦3,000,000
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Why the answer is B, and why the others tempt you.
Shareholders' equity comprises all equity components: Ordinary share capital ₦2,000,000 + General reserve ₦500,000 + Share premium ₦300,000 + Retained earnings ₦700,000 = ₦3,500,000. Debentures are long-term debt (liabilities) and are excluded from shareholders' equity. Option A includes the debentures, making it a common error.
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