PEV June 2007 2.1c help

agilmojagilmoj Just JoinedPosts: 2Registered
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

Comments

  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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.
    Sandy
    [email protected]
    www.sandyhood.com
  • agilmojagilmoj Just Joined Posts: 2Registered
    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
  • SandyHoodSandyHood Font Of All Knowledge Posts: 2,034Registered, Moderator
    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
    Sandy
    [email protected]
    www.sandyhood.com
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