FRC TASK 5
Denisa Naura Mahadhiyasa
29123145 - YP69A
Syndicate 6
Hopkins Company
Statement of Financial Position
December 31st, 2015
Assets
Non-Current Assets
Long-Term Investment
Bonds Sinking Funds 15,000
Property, Plant, and
Equipment
Equipment 112,000
Less: Accumulated Depreciation (28,000) 84,000
Intangible Assets
Patent 15,000
Total Non-Current Assets 114,000
Current Assets
Inventory 65,300
Accounts Receivable 52,000
Less: Allowance for doubtful
(13,500) 38,500
account
Cash 59.500
Petty Cash 500 60.000
Total Current Assets 163.800
Total Assets 277,800
Equity and Liabilities
Equity
Shareholder’s Equity Stock 100,000
Retained Earnings 50,800
Total Equity 150,800
Liabilities
Current LIabilities
Note and Accounts Payable 52,000
Non-Current Liabilities
Note Payable (due 2017) 75,000
Total Liabilities 127,000
Total Equity and Liabilities 277,800
Analysis Answer
Current ratio = current assets
───────────────
current liabilities
= 163,800
──────────
52,000
Current ratio = 3.15 times
So, Hopkins Company can repay the loan because the current ratio is more than two
times, it means ideal that business entity can repay the loan.
Note : To find useful information in the statement of financial position (also known as the
balance sheet) that demonstrates an entity's ability to repay a loan, lenders and
investors typically focus on specific components and ratios. Here's how you can assess
a company's ability to repay a loan using information from the balance sheet:
Current Assets: Current assets are assets expected to be converted into cash or used
up within one year. These include cash, accounts receivable, inventory, and short-term
investments. Lenders are interested in the total value of current assets as they
represent the company's liquidity. A higher level of current assets suggests a better
ability to meet short-term obligations, including loan repayments.
Current Liabilities: Current liabilities are obligations due within one year, such as
accounts payable and short-term debt. Comparing current liabilities to current assets
gives you the current ratio. A higher current ratio indicates a more vital ability to cover
short-term debt obligations.
Current Ratio = Current Assets / Current Liabilities
Principles Answer
The objection about the usefulness that the bank is likely to raise for evaluating Hopkins
for the loan renewal
1. Evaluating the capital structure, Hopkins equity assessed is healthy because
the total equity Hopkins, 150,800 more than the total liabilities, 127,000 so that it
can cover the liabilities.
2. Assess risk and future cash flows, because SoFP can help predict amounts,
timing, and uncertainty of future cash flows
3. Assess the company’s for,
Liquidity → The balance sheet provides insights into its liquidity, which is its
ability to meet short-term financial obligations. Banks want to ensure the
company has sufficient current assets (e.g., cash, accounts receivable) to cover
current liabilities (e.g., accounts payable, short-term debt). A healthy liquidity
position indicates that the company can make timely loan payments.
Solvency → Banks examine the balance sheet to assess its solvency, which is
its ability to cover its long-term financial obligations. They want to see if the
company has more assets than liabilities, indicating that it can repay the loan. A
strong solvency position is a positive factor in loan renewal decisions.
Financial flexibility. → Financial flexibility refers to a company's ability to adapt
and respond to various financial challenges, opportunities, and changes in its
operating environment. Financial flexibility encompasses a range of financial
strategies and practices that enable a company to maintain its financial health
and achieve its goals.
