FIN 300 Chapter Notes - Chapter 2: Longrun
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27 Apr 2014
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The following is the abridged statement of the financial position of Cromwell Ltd
Assets | |
Non-current assets | |
Land & buildings | 500,000 |
Current assets | |
Cash & cash equivalents | 12,000 |
Total assets | 512,000 |
Equity & Liabilities | |
Total equity | (130,000) |
-Issued capital | 320,000 |
Accumulated loss | (450,000) |
Current laibilities | |
Trade payables | 642,000 |
Total equity & Liabilities | 512,000 |
Additional information:
- A reasonable market value for the assets is equal to the book values
- The creditors are prepared to enter into a compromise in order to prevent liquidation
- There is a predicted future profit of $300,000 per annum
- The tax rate is 30%
- The shareholders have indicated that they are considering buying the land and buildings if Cromwell is liquidated
Determine whether Cromwell Ltd should be liquidated or whther the company should rather perform a reconstruction. Show all calculations