Chioma Francisca Nwabuaju

Balance sheet of ABC Company (ABC runs a Coffee seed processing farm, supplying to over 500 coffee shop openings in UK) It’s annual balance sheet at the end of the year Assets Liabilities and shareholder’s equity Current Assets Current liabilities Cash 670,340.00 Account payable (creditors) 350,776.00 Short term investment 23,800.00 Notes payable 11,203.00 Debtors/account receivable 430,450.00 Royalties payable 187,418.00 Stocks/inventories 212,209.00 Taxes payable 58,660.00 Other current assets(bank) 147,152.00 Other current liabilities 301,221.00 Total current assets Non-current assets 1,483,951.00 Total current liabilities Long-term liabilities 909,278.00 Fixed assets Land 498,876.00 Long-term debt 78,230.00 Buildings 219,453.00 Bonds payable - Equipment 141,556.00 Total long-term liabilities 78,230.00 Total fixed assets 859,885.00 Total liabilities Capital (shareholders equity) Contributed capital (common stock) Retained earnings/revenue Accumulated capital (sub-total) 987,508.00 Total assets 2,343,836.00 Total liabilities and shareholder’s equity 2,343,836.00 Analysis: The annual end of the balance sheet of ABC coffee producing company shows that the both side of the balance sheet are equal. Since the left side which shows the financial position of ABC Company in terms of its assets and the right-hand side displays its source of finance used to purchase the asset. The company invest cash amount of £670,340.00, coffee seeds with other product inventories totals £212,209.00 while being owned £430,450.00 by its distributors and borrowed by debtors. ABC Company invested £23,800.00 on short-term and other current asset. In case of emergency and urgent need of money, ABC Company may depend on this current asset (cash) to fulfil this demand. At the start-up of the company years ago, the company borrowed a long-term fund to support its business which is part of the liabilities. Family members supported and friends made a deposit of £187,418.00. The running of the business attracted a loan from a private lender (£350,776.00) and other un-calculated expenses yet to be paid (£11,203.00) The balance sheet also shows the historical cost such as the cost of the fixed asset e.g. Equipment. Which the worth or value of this asset may depend on its functionality and evaluation for other depreciation issues. Hence, the asset were represented as non-current and current. This shows how the asset maybe sold, whether considered an active asset in terms of its usage. The farm land, farm machineries, coffee making building which totals £859,885.00 are regarded as non-current asset while the cash and other resources that can be turn to cash quickly, reaching the amount of £1,483,951.00 are known as the current asset. If the farm accountant decide to add the current and non-current asset, it will arrive at the exact position that will describe the farms financial health in terms of what it owns. (Example £2,343,836.00) Analyzing the right side of the balance sheet, it comprises of the company’s capital and company’s liabilities. The source of the capital resulting from both contributed capital (share capital) and retained profits will make up the accumulated capital. The accumulated capital = contributed capital + retained earnings, which is accumulated capital = £654,098.00 + £702,230.00. Summing it up, we will get the accumulated capital. Long and short term liabilities states what the company owe the suppliers, creditors and other organization. The long term liability of ABC farm shows that the company owes no bonds to the bank or any support organization but owes creditors, family contribution (royalties payable), and a long term debt. Owner of the business has a share equity of £654,098.00, contributed from his wife’s savings and his gather capital resources, this can also be called the shareholder’s equity that will be deducted from the total asset. That is; shareholder’s equity = asset – liability. ££2,343,836.00- £2,343,836.00 = 0 stock or shareholder’s equity Therefore, if the total asset of ABC Company is £2,343,836.00 and the liabilities is same (£2,343,836.00); ABC presently has no owner’s equity to distribute. Meaning that the company still need valuable equity to insure itself against uncertainties and purchase of shares from future investors. Based on the fact stated above, ABC still need more revenue to increase its asset range; build-up an equity and break-even in its pursuit. As of now, the company strives under a balance scale with its asset and liability. In order to perform better in future financial analysis, its asset must supersedes its liabilities (not just equal it).