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 financial position | ||||||
| 20X8 | 20X7 | |||||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Non-current assets | Cost | Depn | NBV | Cost | Depn | NBV |
| Freehold land | 60000 | — | 60000 | 60000 | — | 60000 |
| Buildings | 40000 | 8000 | 32000 | 40000 | 7200 | 32800 |
| Plant and machiner y | 30000 | 16000 | 14000 | 30000 | 10000 | 20000 |
| Vehicles | 40000 | 20000 | 20000 | 40000 | 12000 | 28000 |
| 170000 | 44000 | 126000 | 170000 | 29200 | 140800 | |
| Cur rent assets | ||
| Inventor y | 80000 | 70000 |
| Trade receivables | 60000 | 40000 |
| Short-term investments | 50000 | — |
| Cash at bank and in hand | 5000 | 5000 |
| 195000 | 115000 |
| Current liabilities | ||
| Trade payables | 90000 | 60000 |
| Bank overdraft | 50000 | 45000 |
| Taxation | 28000 | 15000 |
| Dividends | 15000 | 10000 |
| 183000 | 130000 |
| Net current assets | 12000 | (15000) |
| 138000 | 125800 | |
| Financed by | ||
| Ordinary share capital | 80,000 | 80,000 |
| Share premium | 10,000 | 10,000 |
| Retained profits | 28,000 | 15,800 |
| 118,000 | 105,800 | |
| Long-term loans | 20,000 | 20,000 |
| 138,000 | 125,800 |
| Statement of comprehensive income of Parkway plc | |
| £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 machiner y 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:
| RPI | Inventor y | Land | Buildings | Plant | Vehicles | |
| 1 July 20X0 | 100 | 60 | 70 | 50 | 90 | 120 |
| 1 July 20X7 | 170 | 140 | 290 | 145 | 135 | 180 |
| 30 June 20X8 | 190 | 180 | 310 | 175 | 165 | 175 |
| Average for year ending 30 June 20X8 | 180 | 160 | 300 | 163 | 145 | 177 |
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 capital adjustment.
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