answer sheet 15

8/9/2019 Answer Sheet 15

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Answer Sheet 15

Date 3/1/1989

Gordon Pepper obtains a long term bank loan of 8,000 which he will start to pay back in 3 years time.

He also borrows 2000 from his brother that he must repay in 3 months! All money is put in the bank.

Assets Liabilities

Cash in bank 10,000 Bank loan 8,000 Current Assets 10,000

Family loan 2,000 Current Liabilities 2,000

Total Assets 10,000 Total Liabilities 10,000 Working Capital 8,000

Date 4/1/1989 He uses 1,000 from the cash in the bank to buy printing equipment.

Assets Liabilities


Printing equip 1,000 Family loan 2,000 Current Liabilities 2,000Total Assets 10,000 Total Liabilities 10,000 Working Capital 7,000

Current Ratio 4.50 : 1

Date 5/1/1989 He gets stocks of paper and ink, worth 1,250 which he will pay for in 90 days

Assets Liabilities


Printing equip 1,000 Family loan 2,000 Current Liabilities 3,250

Stock 1,250 Creditors 1,250 Working Capital 7,000

Total Assets 11,250 Total Liabilities 11,250 Current Ratio 3.15 : 1

Acid Test Ratio 2.77 : 1

Date 6/1/1989

His first job uses 750 of stock and pays 2,500, which goes into the bank. (Profit = 2,500 - 750)

Assets Liabilities


Printing equip 1,000 Family loan 2,000 Current Liabilities 3,250

Stock 500 Creditors 1,250 Working Capital 8,750

Profit 1,750 Current Ratio 3.69 : 1

Total Assets 13,000 Total Liabilities 13,000 Acid Test Ratio 3.54 : 1

Date 7/1/1989

Gordon pays his brother and his creditors in full from the cash in the bank.

Assets Liabilities Cash in bank 8,250 Bank loan 8,000 Current Assets 8,750

Printing equip 1,000 Family loan 0 Current Liabilities 0

Stock 500 Creditors 0 Working Capital 8,750

UNDERSTANDING THE BALANCE SHEETUNDERSTANDING THE BALANCE SHEET

Asset - something owned by the firm Current Asset - an asset in the form of cash or 'near cash' (eg. Stock)Liability - money the firm owes to someone else Current Liability - a debt needing to be paid in the nearfuture. Working Capital - current assets minus current liabilities.

Current Ratio - current assets divided by current liabilities. This is a measure of how easily the firm can payits short term debts. Firms look to have a current ratio of at least 2:1.

Creditor - someone to whom a firm owes money. 9,000 stays in the bank, since the stock is on credit.Acid Test Ratio - current assets minus stock divided by current liabilities. This is a measure of how easilythe firm can pay its short term debts. Firms look to have an acid test ratio of at least 1:1.


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Profit 1,750

Total Assets 9,750 Total Liabilities 9,750

Date 9/1/1989

Gordon takes 600 from the profit, as wages. He buys 3000 more stock on 90 days credit

He buys a van for 4500 cash

Fixed Assets Liabilities

Printing equip 1,000 Bank loan 8,000 Current Assets 6,650

Van 4,500 Creditors 3,000 Current Liabilities 3,000

Current Assets Profit 1,150 Working Capital 3,650

Cash 3,150

Stock 3,500 Current Ratio 2.22 : 1

Total Assets 12,150 Total Liabilities 12,150 Acid Test Ratio 1.05 : 1

Date 10/1/1989

Gordon does a job using 400 of stock. He will be paid 4,000 in 8 weeks time

Fixed Assets Current Liabilities

Printing equip 1,000 Creditors 3,000 Current Assets 10,250

Van 4,500 Current Liabilities 3,000

Current Assets Long term Liabilities Working Capital 7,250

Cash 3,150 Profit 4,750

Stock 3,100 Bank loan 8,000 Current Ratio 3.42 : 1

Debtors 4,000 Acid Test Ratio 2.38 : 1


Date 12/1/1989

He is paid in full for the above job, and spends 3750 in cash on new printing equipment

He pays off his creditors, but takes another 10000 worth of stock on credit




Current Assets Long term Liabilities Working Capital 3,500Cash 400 Profit 4,750


Debtors 0 Acid Test Ratio 0.04 : 1


Date 2/1/1990

Gordon becomes a private limited company and sells 150,000 of shares to his family

He puts the share capital into the bank

Fixed Assets Current Liabilities Printing equip 4,750 Creditors 10,000 Current Assets 163,500


Current Assets Long term Liabilities Working Capital 153,500

Fixed Asset - An asset (owned by the firm) such as a factory, a vehicle or a machine which are used in theproduction process over a long period of time. Fixed assets are not intended to be sold for cash (they are notliquid orcurrent assets).

Debtor - Someone who owes your firm money, such as a customer who has taken goods and will pay later.


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Cash 150,400 Profit 4,750


Debtors 0 Share capital 150,000 Acid Test Ratio 15.04 : 1


Date 3/1/1990

Gordon uses cash to buy an office for 80,000. He pays his creditors half of what he owes.

His recent work has made him profits of 4000, 1000 of which he is still owed due to late payment

Of the 3000 paid to him, half has gone into the bank and half is kept at the office




Premises 80,000 Working Capital 77,500

Current Assets Long term Liabilities

Cash at firm 1,500 Profit 8,750 Current Ratio 16.50 : 1Cash at bank 66,900 Bank loan 8,000 Acid Test Ratio 13.88 : 1

Stock 13,100 Share capital 150,000

Debtors 1,000


Use the data above to complete the Balance Sheet below (which is in a different format)

Pepper Publishing at 1st March 1990

Fixed Assets

Capital Equipment 4,750

Vehicles 4,500

Premises 80,000

Total 89,250

Current Assets

Cash at firm 1,500

Cash at bank 66,900

Stock 13,100

Debtors 1,000

Total 82,500

DeductCurrent Liabilities from Current Assets

Creditors 5,000

Net Current Assets 77,500

Total Assets less Current Liabilities 166,750 Total assets = fixed assets + current assets

Deduct bank loan 8,000

Net Assets 158,750 (a)

Financed by:

Retained Profit 8,750

Shareholder Funds 150,000

Total 158,750(b)

This way of presenting the

balance sheet has exactly thesame information as the one forPepper ltd above.

It balances because the net assetsof the firm must belong to to theowners of the firm - in the formof retained profit and the funds ofshareholders.

You should find that the figures

(a) and (b) below are equal

answer sheet 15

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