Finlay's business has current liabilities of £23 000, non-current assets of £52 000 and long-term liabilities of £15 000.The total of current assets less current liabilities is £13 000. Which one of the following statements is incorrect?
A)Current assets is greater than long-term liabilities by £21 000
B)Total assets = £88 000
C)Capital is £27 000
D)Total liabilities = £38 000

Question

Quizplus · Accepted Answer

Using the balance sheet equation Assets = Liabilities + Capital, we can work out that the total assets of the business are £90,000 (£23,000 current liabilities + £52,000 non-current assets + £15,000 long-term liabilities = £90,000 total assets). So statement B is correct.

Statement A is correct as £23,000 (current liabilities) subtracted from £36,000 (current assets = £13,000 + current liabilities) gives a difference of £13,000. Adding this to the £15,000 long-term liabilities gives a total of £28,000, which is what is owed by the company in total. Since the non-current assets are worth £52,000, subtracting the long-term liabilities of £15,000 from this gives £37,000, which is greater than the current assets of £13,000. Therefore, the difference between current assets and long-term liabilities is £24,000 (£37,000 - £15,000), not £21,000, so statement A is incorrect.

From the balance sheet equation, we can calculate that the capital of the business is £27,000 (£90,000 total assets - £63,000 total liabilities = £27,000 capital). So statement C is incorrect.

Finally, we can see that the total liabilities of the business are £38,000 (£23,000 current liabilities + £15,000 long-term liabilities), so statement D is correct.

Finlay's Business Has Current Liabilities of £23 000, Non-Current Assets