Question

ABC PLC Consolidated Balance Sheet at December 31, 2019
CAPITAL EMPLOYED
Fixed Assets:
Intangible Assets	216,7 M
Tangible Assets	793,7
Investments	7,4
	1,017,8
Current Assets
Stock	373,9
Debtors	624,2
Cash	175,6
	1,173,7
Current Liabilities
Creditors: amounts falling due within one year	(502,3)
Net current assets	671,4
Total assets less current liabilities	1,689.2
Creditors: amounts falling due after more than one year	(488,4)
Provisions for liabilities and charges	(423,5)
Net Assets	777,3
CAPITAL AND RESERVES
Called up share capital
Ordinary shares	38,7
Convertible cumulative preference shares	337,2
Redeemable convertible cumulative preference shares	-
	375,9
Share premium account	92,8
Capital redemption reserve	461,9
Own shares	(6.4)
Profit and loss account	(180,2)
Shareholders’ Funds
Equity shareholders’ funds                                                          406,8
Non-equity shareholders’ funds                                                 337,2
	744,0
Equity minority interest	33,3
	777,3

  

Required:

1. Identify how format of the above classified balance sheet provides useful information (1 mark)
2. Identify at least three differences in balance sheet reporting between British and U.S. firms as shown in the above balance sheet. (1.5 mark)
3. Calculate at least three financial ratios by using the information available in the above format of balance sheet (1.5 mark).

Answer 1

1.

• The above classified balance sheet provides consolidation of assets and liability of a parent company ABC and its subsidiary PLC on a single document, with no distinction of which item belongs to which company.
• For example, here, in the asset section, accounts receivables present the total amount of receivables of both parent and subsidiary company.
• This classification is to present, primarily, for the benifit of owners and creditors of parent company, with the result of operations and financial position of both entity and its subsidiary as a single entity.

2.

• American format, basucally, is the list format, where asbritian format is two sided format
• Current assets less current liabilities are taken directly, in american format, where ascurrent assets, loans and advances are separately shown from current liabilities in a two sided format in british balance sheet.
• Also, capital and other liabilities are separately shown in british balance sheet whereas in american balance sheet, all the owners equity, reserves and liability are presented together

3.

• Current ratio-

= current assets/current liabilities

= 1,173,7/502,3

= 2.3366

• Quick ratio:

= (current assets - stock) / current liabilities

=(1173,7-373,9/502,3

=1.59

• Total liabilities to total assets ratio:

=total liabilities/total assets

=1414.2/2191.5. = 0.645