Question

AL DELTA Investment company is operating business in a dynamic and competitive market of the Far East. To cope with the dynamic variables of the demand and supply markets, the management of the company is quite conscious about the expected change in NWC, total assets and their implications on total liabilities of the company. Information on the current financial year (2019) and the budgeted data for the year 2020 could be summarized as follows:

1. Expected rate of growth of current assets                    14%
2. Expected positive change in fixed assets                      15%
3. Expected growth rate of NWC                                      17%
4. The total assets (year 2019)                                       $ 28000000

The relationship between current assets and fixed assets is depicted around the ration 3:2 respectively. Current liabilities amounted to $7000000 in year 2019. The company is planning to issue new shares in year 2020, provide that the amount should not exceed 16% of the equity in year 2019. ROTA is projected to be 9% in the coming year and the DPR is 44%. The depreciation rate will remain the same (10%) under the SLM. FA equals equity in year 2019.

Required:

1. As a consultant, find out the implications of change on liabilities in year 2020 and find out the total liabilities of the company
2. Give a concise comparison between êD and SI

Answer 1

B. Give a concise comparison between êD and SI -

Query : Please specify the full forms of eD and SI.

A. The implications of change on liabilities in year 2020 and find out the total liabilities of the company:

PARTICULARS	2019	2020
TOTAL ASSETS	$ 28000000
current assets and fixed assets is depicted around the ratio 3:2
TOTAL ASSETS = CURRENT ASSETS (CA)+FIXED ASSETS (FA)= 3+2 = 5 =28000000 Ratio of 5 is 28000000,ratio of 1 = 28000000/5 = 5600000 Fixed Assets = 2 = 2 x 5600000 = 11200000
CURRENT ASSETS = 3 = 3x 5600000 = 16800000 (2019) Expected rate of growth of current assets in 2020 is 14% CA OF 2020=16800000+14%= 19152000	$16800000	$19152000
TOTAL ASSETS = FIXED ASSETS +CURRENT ASSETS = 11200000 + 16800000 = 28000000
FIXED ASSETS 2019 FIXED ASSETS = 11200000 Expected positive change in fixed assets= 15% 2020 FIXED ASSETS = 11200000+15% = 12880000	$ 11200000	$ 12880000
EQUITY EQUITY 2019 = FIXED ASSETS(FA) EQUITY IN 2019 = 11200000 2020 EQUITY = 11200000 + NEW ISSUE 16% OF EQUITY OF 2019 = 12992000	$ 11200000	$ 12992000
NET WORKING CAPITAL(NWC) = CURRENT ASSETS - CURRENT LIABILITIES 2019:NWC = 16800000 - 7000000= $ 9800000 NWC INCREASED BY 17% IN 2020 2020 NWC = 9800000+17% = $ 11172000 2020: CA = 19152000 CL=CA - NWC = 19152000 - 11172000 = 7980000 CURRENT LIABILITIES	$ 7000000	$ 7980000
CHANGE IN LIABILITIES IN 2020 AND TOTAL LIABILITIES:
EQUITY (INCREASED BY 1792000,OR 16% INCREASE FROM 2019)		$ 12992000
CURRENT LIABILITIES ( INCREASED BY 900000 OR 14% INCREASE FROM 2019)		$ 7980000
TOTAL LIABILITIES OF 2020		$ 20972000