The following balances were available at 31st November 2021 for Salah Ltd. Capital £95,000; Inventory £75,000; Trade Payables £55,000; Trade Receivables £20,000; Non- Current Assets £45,000; Bank Balance £10,000. Salah Ltd used a mark-up of 33%%. Creditors of Salah Ltd are threatening court action unless Salah Ltd reduces the debt for supplies of inventory owing to them. Salah Ltd proposes three options to reduce their debt: (a) Option 1 Hold a sale of inventory by reducing the mark-up to 25%. Salah Ltd estimates that revenue will be £35,000, half of which will be on credit and half paid by cheque Required: (b) Option 2 Offer trade receivables a cash discount of 15%. Salah Ltd estimates that trade receivables of £10,000 will accept the offer Option 3 Pay trade payables valued at £20,000, less 10% cash discount Prepare the Statement of Financial Position extract at 31st November 2021, showing the effect of implementing all 3 options on the Current Assets and Current Liabilities Explain the importance of controlling working capital
The following balances were available at 31st November 2021 for Salah Ltd. Capital £95,000; Inventory £75,000; Trade Payables £55,000; Trade Receivables £20,000; Non- Current Assets £45,000; Bank Balance £10,000. Salah Ltd used a mark-up of 33%%. Creditors of Salah Ltd are threatening court action unless Salah Ltd reduces the debt for supplies of inventory owing to them. Salah Ltd proposes three options to reduce their debt: (a) Option 1 Hold a sale of inventory by reducing the mark-up to 25%. Salah Ltd estimates that revenue will be £35,000, half of which will be on credit and half paid by cheque Required: (b) Option 2 Offer trade receivables a cash discount of 15%. Salah Ltd estimates that trade receivables of £10,000 will accept the offer Option 3 Pay trade payables valued at £20,000, less 10% cash discount Prepare the Statement of Financial Position extract at 31st November 2021, showing the effect of implementing all 3 options on the Current Assets and Current Liabilities Explain the importance of controlling working capital
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1.
Transcribed Image Text:The following balances were available at 31st November 2021 for Salah Ltd.
Capital £95,000; Inventory £75,000; Trade Payables £55,000; Trade Receivables £20,000; Non-
Current Assets £45,000; Bank Balance £10,000.
Salah Ltd used a mark-up of 33%%.
Creditors of Salah Ltd are threatening court action unless Salah Ltd reduces the debt for
supplies of inventory owing to them. Salah Ltd proposes three options to reduce their debt:
(a)
Option 1 Hold a sale of inventory by reducing the mark-up to 25%. Salah Ltd estimates
that revenue will be £35,000, half of which will be on credit and half paid by cheque
Required:
(b)
Option 2 Offer trade receivables a cash discount of 15%. Salah Ltd estimates that trade
receivables of £10,000 will accept the offer
Option 3 Pay trade payables valued at £20,000, less 10% cash discount
Prepare the Statement of Financial Position extract at 31st November 2021,
showing the effect of implementing all 3 options on the Current Assets and
Current Liabilities
Explain the importance of controlling working capital
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