Question

Q4. Mr. Hamad, the finance manager of XYZ Company, has gathered the following condensed balance sheet items along with related ratios. Current assets O.R 5000,000; total assets 20,000,000; current ratio 2:1; and debt ratio 50%. Instructions: Prepare in a proper format a condensed balance sheet for XYZ Company (include the following totals: current assets, fixed asset, total assets, current liabilities, long-term liabilities, total liabilities, owners’ equity, and total liabilities and owners’ equity). ……. 4 marks

Answer 1

Solution

XYZ Company

Balance Sheet

At…………….

Particulars	Amount
Assets
Current Assets	5,000,000
Fixed Assets (WN 2)	15,000,000
Total Assets	20,000,000
Liabilities and Owners’ Equity
Current Liabilities (WN 1)	25,00,000
Long term Liabilities (WN 4)	75,00,000
Total Liabilities (WN 3)	10,000,000
Owner’s Equity (WN 5)	10,00,000
Total Liabilities and Owners’ Equity	20,000,000

Working Notes: (WN stands for working notes).

1. Current Ratio= Current Assets/ Current Liabilities

2/1 = 5,000,000 / Current Liabilities

Current Liabilities = 25, 00,000

*Current ratio and current assets are given in question.

2. Fixed Assets = Total Assets – Current Assets

                       =20,000,000 – 5,000,000

                       = 15,000,000

*Total assets and current assets are given in question.

3. Debt Ratio= Total Liabilities / Total Assets

    50/100 = Total Liabilities / 20,000,000

    Total Liabilities= 20,000,000 / 50 X 100

                          = 10, 000,000

*Debt ratio and total assets are given in question.

4. Long term Liabilities= Total Liabilities - Current Liabilities

                                  = 10,000,000 - 25, 00,000

                                  =7,500,000

*Total liabilities calculation can be referred from working note 3 and current liabilities from working note 1.

5. Owners’ Equity = Total Liabilities and Owners’ Equity - Total Liabilities

                            = 20,000,000 – 10,000,000

                            = 10,000,000

*As total assets are 20,000,000 so, the total Liabilities and Owners’ Equity will be 20,000,000    (assumed as total assets are equal to total Liabilities and Owners’ Equity in a balance sheet).

*For total liabilities calculation refer working note 3.