Rizwan is a trader. His financial year ends on 31 January. He

Rizwan is a trader. His financial year ends on 31 January. He provided the following information on 1 February 20–4:
                                                                                                                        $
Inventory …………………………………………………………………………………   4,620
Trade payables ………………………………………………………                        4,150
Trade receivables ………………………………………………….                         5,340
Bank overdraft ……………………………………………………………..                2,110
Loan from Haziq repayable 31 December 20–4 ………………..            2,000
Loan from Amar repayable 31 January 20–6 ……………………             5,000

a. Calculate Rizwan’s working capital.

b. Suggest two problems Rizwan may encounter if his working capital is inadequate.

Rizwan is considering adopting one of four possible courses of action aimed at increasing his working capital.

c. Explain the effect on the working capital of each of the following proposals:

Proposal 1 Introduce an additional $5,000 capital.
Proposal 2 Convert the loan from Haziq into a bank loan repayable on the same date.
Proposal 3 Sell one third of the inventory to a cash customer at cost price.
Proposal 4 Pay the trade payables immediately and earn a 2% cash discount.

d. Suggest two other ways Rizwan could consider to increase his working capital.

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