QUESTION 1 (34 marks) Gabex Ltd is a retailer of furniture and fittings who allows customers to buy on credit. The following information pertains to Gabex for the year ended 31 March 2022: Extract from the pre-adjusted trial balance of Gabex as at 31 March 2022 Trade receivables Allowance for doubtful debts 1 840 800 184 080 The following are policies of Gabex Ltd: Gabex Ltd has a policy to provide an allowance for bad debts of 10% of their trade receivable balance. It is Gabex Ltd policy to reinstate debtors who were previously written off if they repay their debts thereafter. The following additional information relates to the trade receivable cycle that were not taken into account in the accounting records for the 2022 financial year: 1. A debtor, Mr X. Huang who had debt of R7 906 was untraceable. It was thus decided to write off his debt as irrecoverable. 2. A credit note of R2 950 for goods returned had been incorrectly entered in the records on 15 March 2022 as if it were an invoice. 3. A credit sale to debtor, Mr D. Barry amounting to R885 was recorded incorrectly to debtor, Mr P. Barnard in the Debtors' Ledger on 18 March 2022. 4. The March 2022 bank statement reflected a dishonoured (R/D) cheque for an amount of R41 772. This cheque had been received on 3 March 2022 from debtor Mrs L. Singh and had been deposited in the bank account on the same day and correctly recorded in the cash receipts journal on that day. 5. A settlement discount of R2 124 had been completely omitted from the records. 6. On 25 March 2022, an amount of R6 700 was received by Mr X. Huang. Mr X. Huang explained that he was visiting his remote hometown in China and had completely forgotten about his debt owed and remembered only once returned. 7. Debtor, Mrs T. Zolani was declared insolvent during 2022. The total debt owed by her on 31 March 2022 was R38 600. Mrs T. Zolani's lawyer confirmed that Gabex Ltd would receive 15c for each Rand owed. On 31 March 2022, a payment 3 HFAC130-1-JulDec2022-FA2-GC-V3-21072022 was received from Mrs T. Zolani's lawyer. The remainder of Mr T. Zolani's debt was written off as irrecoverable. 8. A credit sale transaction of R43 500 and a sales return transaction of R 7 900 that occurred on the 31 March 2022 was omitted from the respective journals. REQUIRED: a) b) Prepare the Trade Receivables account in the General Ledger. Show all workings. Ignore VAT. (31 Marks) There are risks to investing in working capital. State what the consequences are to the risks mentioned below: Where criteria for deciding whether to allow customers to purchase on credit are too strict. Where levels of inventory are too high. Where cash levels are too high. (3 x 1 3 Marks)