PEV June 2007 2.1c help

agilmoj

Can anyone explain how the Increase in short term borrowings of -95,000
and the increase in creditors of -20,000 is calculaed in the PEV June 2007 exam paper. 2.1c
I asked my tutor and he could not explain it. He told me to just work it out using the first method which was to just add the re-calculated Profit of 318,000 to the share capital of 725,000
I really want to know how the second method is calculated.

Thanks

James

SandyHood

Instead of adjusting the capital section of the balance sheet, just go through the fixed assets and current assets and creditors and update them one by one.

agilmoj

Thats what I am trying to work out , but I can not get it to come back to the numbers in the answers, as there are no short term borrowings shown in the balance sheet to compare to.

Thanks

SandyHood

agilmoj

I hope that you are not in my class. If so, I will give you the same advice I give in class. BEWARE OF EXAMINERS' ANSWERS.

1. They are useful for comparing with your own
2. They can cause confusion if you are using them to try to learn a topic.

There are 2 ways find a revised net asset value on a balance sheet.

1. Look at the capital
2. Look at the statement of assets and liabilities

In an exam 1. is much easier. In this case:-
we had £683,000 and we increased the profit from -£42,000 to £318,000 (£360,000) so we will have £1,043,000.

Using 2.
We

1. Increased closing stocks (I added £40,000 to stock and decreased the cash balance by the same amount)
2. Trade debtors increased by £75,000 (I increased trade debtors and reduced cash)
3. Trade creditors fell (decrease cash by £30,000 decrease trade creditors)
4. Short term borrowing increased by £145,000. (I increased cash by £145,000 and increased short-term borrowings.
5. Profit increased by £360,000 (Increase cash)
6. Long trem loans fell by £360,000 (decrease cash decrease long term loans)

Now look at the revised balance sheet (in thousands)
Machinery £1600
Stock £90
Trade debtors £225
Cash nil
Short term borrowing £145
Trade creditors £45
Net current assets £125

Long term borrowings £682
Net assets £1,043