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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

When a forecast balance sheet is prepared and total forecast assets exceed the total of forecast liabilities and equity, the difference is treated as which item?

The excess of forecast assets over forecast liabilities and equity is the additional external financing required. It is the balancing figure that must be raised through borrowing or fresh capital so that the forecast balance sheet balances.

  1. ASurplus cash to be distributed as dividend
  2. BAdditional external financing required, the balancing figureCorrect
  3. CA decrease in fixed assets
  4. DReduction in retained earnings

Explanation

Where forecast assets exceed forecast liabilities plus equity, the shortfall must be met by new funds such as borrowing or fresh equity. It acts as the plug figure that balances the balance sheet. Treating it as surplus cash reverses the logic.

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