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I did watch the lecture but I have few questions relating to the SOFP below. Please correct me if i am wrong?
1. Business raised finance from (3) sources such as Equity, Non-current Liabilities and Current Liabilities.
2. Business raised finance from equity of $350,000 by issuing the shares to public.
3. Business raised finance from non-current liabilities of $300,000 by borrowing the long-term loan from bank (can we borrow other than the bank?)
4. Business raised finance from current liabilities of $100,000 by borrowing the short-term loans from bank.
5. Business invest the raised finances in two ways such as Non-current assets and Current assets.
6. Business has invested the raised finance in non-current assets of $500,000 in Factory and Equipment respectively.
7. Business has also invested the raised finance in current assets of $200,000 in inventory and receivables respectively.
8. SOFP is all about how the company raised Finance from their Equity and Liabilities AND how they invest them in their assets.
Non-current assets:
Factory $300,000
Equipment $200,000Current assets:
Inventory $100,000
Receivable $100,000Equity:
Share capital $350,000Non-current liabilities:
Loans $300,000Current liabilities:
Account Payable $50,000
Overdraft $50,000What you have written all seems to be correct.
As far as (3) is concerned, then they can borrow money from anyone. A bank is just the most likely source for a loan.
Thanks so much. I was looking for the answers for so long. Before I leave can u pls explain these too?
1) When will the company pay back the money it raised from the non-current liability of $300,000 by borrowing the loan?
2) When will the company usually pay back the money that it raised from the shareholders of $350,000 by issuing the shares?
3) Can you please explain anyone else other than the bank whom the business can borrow the money?
4) Please explain why SOFP is called statement of financial position?
5) Is it true that the reason behind total assets equal total equity & liabilities is because all the finance raised by the company is invested i n the total assets?
1. It depends on what was agreed when the company took the loan. When you borrow money you will agree with the lender as to when it will be repaid.
2. The money is never repaid to the shareholders (unless the company completely closes down in which case they take whatever money is left in the business after selling all the assets and paying all the liabilities. This is more of a Paper LW issue,.)
3. They can borrow the money from anyone. They could borrow just from one individual.
4. Because it shows the financial position of the business i.e. what they own and what they owe.
5. Yes
Have you watched all of the lectures (not just the lectures on limited companies)? Together they form a complete free course for Paper FA.
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