Meadow Makers is a social enterprise that sells craft kits and uses some of its profit to fund weekend activities for children. The business has been offere...
Question 1 Report
Meadow Makers is a social enterprise that sells craft kits and uses some of its profit to fund weekend activities for children. The business has been offered a new retail unit. The manager provided the following information to the committee: non-current assets are $250 000, current assets are $110 000, current liabilities are $70 000 and non-current liabilities are $140 000. The committee wants to know the value owned by the business after its debts are deducted. It also wants to compare this figure with the amount of finance invested by members before selecting the retail-unit option. The manager says accounts provide useful information, but they do not measure the social benefit created for children.
(a) State the total current liabilities of Meadow Makers. [1]
(b) Define net assets. [1]
(c) Calculate the net assets of Meadow Makers. Show your working. [3]
(d) Analyse whether net assets alone are enough information for the committee to select the new retail unit. [5]
Answer Details
(a) Meadow Makers' current liabilities are $70,000. [1]
(b) Net assets are total assets less total liabilities. They represent the value belonging to the owners after debts are deducted. [1]
(c) \[\text{Total assets}=\$250000+\$110000=\$360000\] \[\text{Total liabilities}=\$70000+\$140000=\$210000\] \[\text{Net assets}=\$360000-\$210000=\$150000\] Net assets are $150,000. [3]
(d) Net assets of $150,000 show the financial value remaining after debts, helping the committee assess financial strength and possible borrowing capacity. However, they do not show whether the business has enough cash for rent, stock and current payments. They also do not predict sales, profit or the new unit's running costs. As a social enterprise, Meadow Makers must also consider the social benefit for children, which net assets do not measure. Cash-flow forecasts, profitability forecasts and social-impact information are needed before selecting the unit. [5]
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