CHAPTER 5 Balance sheet 2012017
$2016
$
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets39 580
16 775
9 15434 507
20 217
8 687
Total non-current assets 65 509 63 411
Total assets 125 026 125 893
Liabilities
Current liabilities
Accounts payable
Short-term borrowings
Current tax liabilities
Provisions for employee benefits (short-term)23 241
9 254
6 845
9 64220 557
8 697
5 248
7 246
Total current liabilities 48 982 41 748
Non-current liabilities
Long-term borrowings
Deferred tax liabilities
Provisions for employee benefits (long-term)14 652
15 356
8 19814 328
14 524
5 469
Total non-current liabilities 38 206 34 321
Total liabilities 87 188 76 069
Net assets 37 838 49 824
Equity
Issued capital
Retained earnings28 654
9 18424 562
25 262
Total equity 37 838 48 824b. Liquidity refers to an entity’s ability to meet its short-term financial commitments. A preliminary
assessment of the company’s liquidity can be made by comparing the assets that the company
can readily convert into cash (that is, cash, receivables and inventories) to the short-term cash
demands on the company (that is, payables and short-term borrowings).
Looking at Broadband Pty Ltd’s balance sheet in 2016 and 2017, the company’s liquid assets
(that is, cash, receivables and inventories) have decreased by $3655 ($48 629 in 2016 compared to
$44 974 in 2017). On the other hand, its short-term commitments (that is, payables and short-term
borrowings) have increased by $3241 ($32 495 in 2017 compared to $29 254 in 2016). It should be
recognised that inventories may take some time to sell and are not as liquid as cash.
For the time being, Broadband Pty Ltd appears to be able to repay its short-term commitments
when they fall due, as the balance sheet data show that its liquid assets exceed its short-term com-
mitments in 2017. However, if the trend of decreased liquid assets and increased short-term com-
mitments continues, Broadband Pty Ltd may have a liquidity problem in the future, which means
the company may have difficulty paying its short-term liabilities.
Broadband Pty Ltd has financed more of its assets in 2017 with liabilities relative to 2016. Total liabilities
in 2017 represent 70 per cent of total assets. In 2016, 60 per cent of assets were financed with liabilities.5.2 In January 2013, business and information technology graduates, Zac and Tran, contributed $20 000
in total to commence their business CloudIt Pty Ltd. During the first year of operations, the
company reports a loss of $15 000. In year 2, a profit of $5000 is recorded, increasing to $20 000 in
year 3. Year 4’s profits are $45 000, and a total dividend of $12 000 is distributed to Zac and Tran.
A $70 000 profit is reported in year 5, and to take advantage of a market opportunity, Zac and Tran
contribute another $50 000 in total.
Required
a. Calculate the balance that would appear in the retained earnings as at the end of 2017.
b. Prepare the equity section of CloudIt Pty Ltd’s balance sheet as at 31 December 2017.