Homework SourseAssets are 100 and expected to by 14 Liabilities and owners
Assets are 100 and expected to by 14% . Liabilities and owners equity are 100 and expected to grow by 16% . The plug for the first pro forma year is a ?
A. Liabilities plug
B. Cash plug
C. Niether a nor b
Assets are 100 and expected to by 14% . Liabilities and owners equity are 100 and expected to grow by 16% . The plug for the first pro forma year is a ?
A. Liabilities plug
B. Cash plug
C. Niether a nor b
A. Liabilities plug
B. Cash plug
C. Niether a nor b
Solution
As the assets of 100 are expected to grow by 14%, the resultant asset with growth of 14% is 100+14%=114 ; however liabilities and owners equity are expected to grow by 16% i.e 100+16%=116, hence there is plug to be covered in asset side to the extent of 116-114 = 2, which can be plugged in by cash plug of 2.
Accordingly the plug for the first proforma year is a cash plug.
