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Maxwell owns all the share capital of Knight. The following information is extracted from the individual company statements of financial position as at 31 December 20X1:
Maxwell Knight
$ $
Current assets 500,000 200,000
Current liabilities 220,000 90,000
Included in Maxwell’s purchase ledger is a balance in respect of Knight of $20,000. The balance on Maxwell’s account in the sales ledger of Knight is $22,000. The difference between those figures is accounted for by cash in transit.there are no other intra-group balances, what is the carrying amount of the net current assets in the consolidated statement of financial position of Maxwell?
A.$368,000
B.$370,000
C.$388,000
D.$390,000
The correct answer is D.WORKING
current assets 500+200-22+2 = 680
current liabilities 220+90+20 = 290
total = 680 – 290my question is why do we 500+200-22+2 instead of 500+200-22+2-2
the +2-2 in my answer is because the cash is in transit, thus we add cash and minus receivableHi,
I can see where you are coming from but when dealing with the cash in transit you increase the cash balance and reduce the receivable balance before then removing the then equal intragroup balance outstanding.
So in this instance the cash in transit reduces the receivable to 20 from 22, and you would therefore need to reduce your balance by 20 and not the 22 as you have done.
Thanks
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