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Hi everyone, I came across the question below while studying, however I can’t seem to understand how to the answer is C or how to calculate it.
A company has the following summarised Statement of Financial Position at 31 December 20X4:
$’000
Non?current assets 1,000
Current assets:
Inventories 200
Receivables 150
Cash 100
–––––
450
Current liabilities:
Payables 200
–––––
Net current assets 250
–––––––
1,250
–––––––Over the next year the company should double its sales. The company does not plan to
invest in any new non?current assets, but inventories, receivables and payables should all move in line with sales.What cash balance in one year’s time would this imply if the non?current assets were all
land, no new capital was raised and all profits were paid out as dividends?
A $100,000 cash in hand
B $200,000 cash in hand
C $50,000 overdraft
D $100,000 overdraftAnswer C.
There has been no additional investment in working capital as all profits made were paid as dividends, no new capital was raised and the non current asset structure is the same as previous year. It therefore means that the net current assets ( working capital) is still $250.
Inventory 200 x 2= 400
Receivables 150 x 2= 300
Cash {bal fig} (50)Total 650
Payable 200x 2= 400
Net current assets: 650-400= 250
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