To determine the nominal value of each share in the given scenario, we need to understand a few key concepts related to share capital and how it is structured in a limited liability company.
Step-by-Step Explanation
- Understanding Authorized Share Capital:
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The authorized share capital of a company is the maximum amount of share capital that the company is authorized to issue to shareholders. In this case, the authorized share capital is N50 million.
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Understanding Share Structure:
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The authorized share capital of N50 million is split into 100 million shares. This means that the company has decided to divide its total capital into 100 million individual shares.
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Calculating the Nominal Value of Each Share:
- The nominal value (also known as par value) of a share is calculated by dividing the total authorized share capital by the total number of shares.
- Formula:
[
\text{Nominal Value per Share} = \frac{\text{Total Authorized Share Capital}}{\text{Total Number of Shares}}
]
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Plugging in the values:
[
\text{Nominal Value per Share} = \frac{N50,000,000}{100,000,000} = N0.50
]
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Conclusion:
- Therefore, the nominal value of each share is N0.50.
Explanation of Other Options
- Option A: N2:
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This option suggests that each share has a nominal value of N2. This is incorrect because if each share were worth N2, the total authorized share capital would be N200 million (N2 x 100 million shares), which exceeds the stated authorized share capital of N50 million.
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Option B: N0.80:
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This option implies that each share has a nominal value of N0.80. If this were true, the total authorized share capital would be N80 million (N0.80 x 100 million shares), which again exceeds the authorized share capital of N50 million.
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Option C: N0.60:
- This option suggests a nominal value of N0.60 per share. If this were the case, the total authorized share capital would be N60 million (N0.60 x 100 million shares), which is still higher than the authorized share capital of N50 million.
Common Pitfalls
- Misunderstanding Nominal Value: Students often confuse the nominal value with the market value or the subscription price. The nominal value is a fixed value set by the company and does not change based on market conditions or subscription prices.
- Calculating Total Capital Incorrectly: Ensure that when calculating the nominal value, you are using the correct total authorized share capital and the total number of shares.
Revision Summary
- The nominal value of a share is calculated by dividing the total authorized share capital by the total number of shares.
- In this case, the nominal value is N0.50 (N50 million / 100 million shares).
- Other options are incorrect as they imply a total capital that exceeds the authorized share capital.
- Always differentiate between nominal value, market value, and subscription price when studying share capital.