The statements of financial position of Parkway plc for 20X7 and 20X8 are given below, together with the income statement for the year ended 30 June 20X8.

Statement of comprehensive income of Parkway plc

for the year ended 30 June 20X8

£000

Sales ............ 738,000

Cost of sales ....... 620,000

Gross profit ......... 118,000

Notes

1 The freehold land and buildings were purchased on 1 July 20X0. The company policy is to depreciate buildings over 50 years and to provide no depreciation on land.

2 Depreciation on plant and machinery and motor vehicles is provided at the rate of 20% per annum on a straight-line basis.

3 Depreciation on buildings and plant and equipment has been included in administration expenses, while that on motor vehicles is included in distribution expenses.

4 The directors of Parkway plc have provided you with the following information relating to price rises:

Required:

(a) Making and stating any assumptions that are necessary, and giving reasons for those assumptions, calculate the monetary working capital adjustment for Parkway plc.

(b) Critically evaluate the usefulness of the monetary working capitaladjustment.

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Statement of financial position 20X8 20X7 £000 £000 £000 £000 £000 £000 Non-current assets Cost Depn NBV Cost Depn NBV 60,000 Freehold land 60,000 60,000 60,000 40,000 32,000 7,200 32,800 Buildings Plant and machinery 8,000 40,000 16,000 30,000 40,000 30,000 14,000 10,000 20,000 Vehicles 40,000 20,000 170,000 44,000 20,000 12,000 28,000 170,000 29,200 140,800 126,000 Current assets 70,000 Inventory 80,000 40,000 Trade receivables 60,000 Short-term investments 50,000 Cash at bank and in hand 5,000 5,000 195,000 115,000 Current liabilities Trade payables Bank overdraft 90,000 60,000 45,000 50,000 15,000 Taxation 28,000 Dividends 15,000 10,000 183,000 130,000 Net current assets 12,000 138,000 (15,000) 125,800 Financed by Ordinary share capital Share premium Retained profits 80,000 80,000 10,000 15,800 10,000 28,000 118,000 105,800 Long-term loans 20,000 20,000 125,800 138,000