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A Level Accounting (9706)•9706/12/O/N/21
Question 1 from 9706/12/O/N/21

Explanation

Ambiguous purchases ledger balance prevents exact working capital calculation

Steps:

  • Identify initial working capital: trade receivables 10,000minustradepayables10,000 minus trade payables 10,000minustradepayables600 minus bank overdraft 1,600=1,600 = 1,600=7,800.
  • Set off reduces trade receivables and trade payables by S = min(600,purchasesledgerbalance);sincetotalpayables600, purchases ledger balance); since total payables 600,purchasesledgerbalance);sincetotalpayables600, S ≤ $600, so working capital unchanged by set off.
  • Create provision for doubtful debts: 5% of adjusted receivables (10,000−S)=0.05×(10,000 - S) = 0.05 × (10,000−S)=0.05×(10,000 - S).
  • Final working capital = 7,800−0.05×(7,800 - 0.05 × (7,800−0.05×(10,000 - S) = 7,300+0.05S(ranges7,300 + 0.05S (ranges 7,300+0.05S(ranges7,300 to $7,330 depending on S).

Not enough information.

Final answer: Not enough information.

Topic: Preparation of financial statements

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