Use the following information to answer the following questions: Items Le Debtor 30,000 Cash in hand 6,750 Plant and machinery 72,000 Motor van 31,000 Stock...
Question 1 Report
Use the following information to answer the following questions:
| Items | Le |
| Debtor | 30,000 |
| Cash in hand | 6,750 |
| Plant and machinery | 72,000 |
| Motor van | 31,000 |
| Stock of raw materials | 12,000 |
| Loan | 50,000 |
| Trade creditors | 43,000 |
Calculate
(a) The liquid capital for the business
(b) The fixed assets
(c) Teesan Enterprise's capital or statement of affairs as at 31/10/2010.
(d) The working capital for Teesan Enterprises Ltd.
Answer Details
Teesan Enterprises as at 31/10/2010
| Item | Le | Classification |
|---|---|---|
| Plant and machinery | 72,000 | Fixed asset |
| Motor van | 31,000 | Fixed asset |
| Debtor | 30,000 | Current asset |
| Cash in hand | 6,750 | Current asset |
| Stock of raw materials | 12,000 | Current asset |
| Trade creditors | 43,000 | Current liability |
| Loan | 50,000 | Long-term liability |
Current assets = Debtor + Cash + Stock = 30,000 + 6,750 + 12,000 = Le48,750
Liquid (quick) assets = Current assets - Stock = 48,750 - 12,000 = Le36,750
Current liabilities = Trade creditors = Le43,000 (the loan is long-term)
(a) Liquid capital = Liquid assets - Current liabilities
= 36,750 - 43,000 = (Le6,250), a liquid-capital deficit. The quick assets (Le36,750) fall short of the current liabilities, so the firm cannot meet its short-term debts from its most liquid resources.
(b) Fixed assets = Plant and machinery + Motor van = 72,000 + 31,000 = Le103,000
(c) Capital (statement of affairs) as at 31/10/2010
Capital = Total assets - Total liabilities
Total assets = Fixed assets + Current assets = 103,000 + 48,750 = Le151,750
Total liabilities = Loan + Trade creditors = 50,000 + 43,000 = Le93,000
Capital = 151,750 - 93,000 = Le58,750
(d) Working capital = Current assets - Current liabilities
= 48,750 - 43,000 = Le5,750
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