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Answer – Balance Sheet

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This is the suggested answer to the Balance Sheet exercise on Colorado Ricardo Mountain Bikes.

Balance sheet: Assets equal Liabilities plus Equity

Non-Current Assets

Factory and equipment: $3,000,000.

Current Assets

Cash $500,000, inventory $700,000, and trade receivables $300,000, totalling $1,500,000. Total assets: $3,000,000 + $1,500,000 = $4,500,000.

Current Liabilities

Trade payables $500,000 and the short-term loan $300,000, totalling $800,000.

Non-Current Liabilities

The long-term loan: $1,200,000. Total liabilities: $800,000 + $1,200,000 = $2,000,000.

Equity

Since Assets must equal Liabilities plus Equity, equity is the balancing figure: $4,500,000 – $2,000,000 = $2,500,000.

Key point: the balance sheet always balances by definition – equity is not a figure that gets counted separately, it is whatever is left once liabilities are subtracted from assets. For a marketer, this matters because it shows how much of the business is funded by debt (gearing) rather than the owner’s own stake, which affects how much borrowing capacity is left to fund a new venture like an e-mountain bike.

These same figures are used across the rest of the finance exercises in this section, including Financial Ratios and the Cash Flow Statement.

Written by Marketing Teacher.
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