Analyse and comment on the impact of the following events on a companies balance sheet, income statement and cash flow statement. E. g. Company purchases Machinery for $100,000 in cash. Effect. Obvious impact Fixed Asset increased, Balance sheet affected. Company will start recording depreciation expense in Income Statement Cash Outfi ow will reduce balance of cash on balance sheet. Current Ratio likely affected adversely and Working Capital. Analysis. Company may experience increase in Accounts Payable because of such a substantial cash outflow. This will affect Current Liabilities. Or. Company may have to seek short term loan from the bank as a back up in case there is any disturbance in receivables in the future. To counter this substantial cash outflow. Company should have negotiated with a bank a low interest loan to purchase machine over time in instalments. 1)A Manufacturing company ABC: relies on several suppliers for raw materials, often these materials are purchased on 90 days credit. A key supplier cancels the line of credit to the company ABC due to late payments. Discuss the impact this will have on the company. Think cash conversion cycle, ratios etc.
Analyse and comment on the impact of the following events on a companies balance sheet, income statement and cash flow statement. E. g. Company purchases Machinery for $100,000 in cash. Effect. Obvious impact Fixed Asset increased, Balance sheet affected. Company will start recording depreciation expense in Income Statement Cash Outfi ow will reduce balance of cash on balance sheet. Current Ratio likely affected adversely and Working Capital. Analysis. Company may experience increase in Accounts Payable because of such a substantial cash outflow. This will affect Current Liabilities. Or. Company may have to seek short term loan from the bank as a back up in case there is any disturbance in receivables in the future. To counter this substantial cash outflow. Company should have negotiated with a bank a low interest loan to purchase machine over time in instalments. 1)A Manufacturing company ABC: relies on several suppliers for raw materials, often these materials are purchased on 90 days credit. A key supplier cancels the line of credit to the company ABC due to late payments. Discuss the impact this will have on the company. Think cash conversion cycle, ratios etc.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Analyse and comment on the impact of the following events on a companies balance sheet, income statement and cash
flow statement. E. g. Company purchases Machinery for $100,000 in cash. Effect. Obvious impact Fixed Asset
increased, Balance sheet affected. Company will start recording depreciation expense in Income Statement Cash Outfi
ow will reduce balance of cash on balance sheet. Current Ratio likely affected adversely and Working Capital. Analysis.
Company may experience increase in Accounts Payable because of such a substantial cash outflow. This will affect
Current Liabilities. Or. Company may have to seek short term loan from the bank as a back up in case there is any
disturbance in receivables in the future. To counter this substantial cash outflow. Company should have negotiated with
a bank a low interest loan to purchase machine over time in instalments. 1)A Manufacturing company ABC: relies on
several suppliers for raw materials, often these materials are purchased on 90 days credit. A key supplier cancels the line
of credit to the company ABC due to late payments. Discuss the impact this will have on the company. Think cash
conversion cycle, ratios etc.
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