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ESTIMATION OF WORKING CAPITAL

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CA Abhishek Singh (Querist)
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15 March 2010 PLEASE CLARIFY THR FOLLOWING ADJUSTMENTS

1.) TIME LAG IN PAYMENT OF WAGES AND OVERHEADS IN 2 WEEKS EACH.
& WAGES AND OVERHEADS ACCRUE EVENLY.

2.)WAGES AND OVERHEADS ARE PAID IN THE BEGINING OF NEXT MONTH & WAGES AND OVERHEADS ACCRUE EVENLY.

I REALLY GET CONFUSED WHILE CALCULATING THE PERIOD FOR O/S WAGES & OVERHEADS. FOR ESIMATION OF WORKING CAPITAL WHETHER IT WILL BE WILL BE HALF MONTH OR ONE MONTH.

PLEASE EXPLAIN ME IN DETAIL CONCEPTUALLY.
THANKS IN ADVANCE
MY ID abhipcc@rediffmail.com

DEEPIKA GOEL

DEEPIKA GOEL (Expert)
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15 March 2010 As you have mentioned in the question, time lag in payment of wages and overheads is 2 weeks, the outstanding wages and overheads would be calculated for remaining two weeks (i.e. half month)....

For understanding I am explaining it in below:--

As in one month there are 4 weeks and wages are overheads became due and paid after every 15 days (i.e. two weeks)and it accured at every day. As mentioned in question, wages and overheads are paid in the beginning of next month for last amount accrued.

From the above, we can conclude that for estimation of working capital we would consider the wages and overheads for half month.

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