Question

The comparative, unclassified statement of financial position for Alton Ltd. shows the following balances at December 31: 2017 Alton Ltd. Statement of Financial Position December 31 2018 Assets Cash $5,000 Term deposits (maturing in 60 days) Accounts receivable 75,000 Inventory 101,000 Land 180,000 Buildings 923,000 Accumulated depreciation-buildings (136,000) Equipment 100,000 Accumulated depreciation-equipment (41,000) Total assets $1,207,000 Liabilities and Shareholders' Equity Accounts payable $ 29,000 Income tax payable 3,000 Interest payable 18,000 Bank loan payable-current portion 56,000 Bank loan payable-non-current portion 891,000 Common shares 160,000 Retained earnings 50,000 Total liabilities and shareholders' equity $1,207,000 $36,000 42,000 40,000 70,000 230,000 524,000 (190,000) 70,000 (20,000) $802.000 $72,000 5,000 13,000 40,000 420.000 180,000 72.000 $802,000 Additional information regarding 2018: 1. Net income was $10,000. 2. A loss of $21,000 was recorded on the disposal of a small parcel of land. No land was purchased during the year. 3. Again on disposal of $15,000 was recorded when an old building was sold for $40,000 cash. A new building was purchased for $520,000 and depreciation expense on buildings for the year was $42,000. 4. Equipment costing $72,000 was purchased while a loss of $11,000 was recorded on equipment that originally cost $42,000 and was sold for $21.000. 5. The company received $512,000 from new bank loans during the year. 6. Dividends were declared and paid during the year. 7. No common shares were issued during the year but some were bought back and retired at the amount they were originally issued at.

Answer 1

b)	Positive working capital is when a company has more current assets than current liabilities, meaning the company can fully cover its short-term liabilities as they come due in the next 12 months. Positive working capital is a sign of financial strength. However, having an excessive amount of working capital for a long time might indicate the company is not managing their assets effectively.
	Negative working capital is when the current liabilities exceed the current assets, and the working capital is negative. Working capital could be temporarily negative if the company had a large cash outlay as a result of a large purchase of products and services from its vendors.
	However, if the working capital is negative for an extended period of time, it may be a cause of concern for certain types of companies, indicating that they are struggling to make ends meet and have to rely on borrowing or stock issuances to finance their working capital.
	In the given case company is having Non cash working capital of $1,76,000(Inventory+Receivables) and Current liabilities of $1,06,000
	So, The company has more current assets than current liabilities, meaning the company can fully cover its short-term liabilities as they come due in the next 12 months
c)	Company is not having sufficient assets to cover the loan taken from bank as on 31-Dec-2018.