# Management of Receivables and Payables Example 1

1. says

hi Mr Moffat
at 18:24 you said difference of 500 is cost for us for getting it now.. did you mean 100{5000-4900}?

2. says

The new upgrade for the video lectures looks great and is more helpful than the last format.

3. says

Good day sir,
Thank you for the lectures,based on the example in the lecture notes,can i use the 12m sales figure to solve the question which gives me approx. 21%.as the discount to be offered?

• says

The \$12M is not relevant. The reason is that although we might offer a discount, we can not force customers to pay early and take advantage of it. We might hope we will (and therefore we might offer the discount) but again, we have no idea how many of the customers will take it.

4. says

Hello Sir,

Do you explain any short cut method of solving the formula:
annual cost of discount = (1+discount / amount left to pay)^no. of periods – 1
by calculator ?

• says

No really – you need to have a scientific calculator for this exam anyway, in which case there should be no problem taking n’th powers.

5. says

each time im trying to play chapter 5 lectures an F3 chapter 1 lecture plays, please advise

• says

The problem is at your end – if you go to the technical support page then you should find a solution (the link is below the lecture, headed “Technical problems”)

6. says

First of all thanks for the lectures, they are very useful and valuable material.
Could you please clarify which method to use in order to calculate the annual cost of discount taking example 1?
-your method of 4% / 96% * 6=25% or
-(1+4%/96%)^6-1=27.8% as written in Kaplan F9 Essential Text published in 2012

Thanks,

• says

Strictly the second method is more correct.
However it is only ever been asked twice in the whole history of the exam – both times it was just two marks, and both times the examiner said he would accept either method.

• says

Thanks for the clarification!

• says

The videos are not downloadable – it is the only way that we can keep this website free of charge.

7. says

hello,
Please explain me the meaning of the following line
Finding a total level of credit which can be offered is a matter of finding the least costly balance between enticing customers, whose use of credit entails considerable costs, and refusing opportunities for profitable sales
Thnx in a anticipation

• says

What they are trying to say is the following:

If you allow customers to take credit then you have the cost of chasing those who don’t pay, you lose interest while you are waiting for the money, and there is more risk of people not paying. The more credit you allow the more these costs will be.

However, if you don’t allow customer to take credit then you risk them going to another supplier who does give them credit and therefore you risk losing sales.

Hope that makes sense

8. says

Hi Mr Moffat,, Sir I was going through a question in the pilot paper Ulnad Co,, and I noticed one thing,,we are told that the sales figure is \$6M and it increased by 5% and also they offered a discount of 1.5% in which 30% of customers took the discount offered,, in calculating new receivable days 46.5 days I got it, however the new sales figure I got stuck,, the answer module calculated \$6M × 1.05= \$6.3M,, my question is why they didnt subtract the discount which will be 6.3 – ( 30% × 1.5% × 6.3M) =6271650 so that the sales figure is less the discount offered,, so that the new receivable will be 46.5/365 × 6271650 rather than 46.5/365 × 6.3M,,,

• says

You can do that. Sometimes the examiner subtracts the discount and sometimes he does not. You would get full marks either way.

• says

Thank you very much Mr moffat,,, I really really appreciate to the awesome videos and to your timely response for the ealier questions,, today is f9 examination hop it will be good ,, once again I express my gratitude for everything. Have a blessed day

9. says

Great lecture!
and, I do think this method is far more easier to understand the method given in Kaplan; annual cost of discount = (1+discount / amount left to pay)^no. of periods – 1. But, will the examiner give marks for this method?

Exam questions are tougher than the questions we practice here, but it;s the theory we need to understand. When I sat for F5 last June, I went through only Opentuition lecture Videos and one past paper, but the understanding I got by going through the lectures got me enough marks to pass the exam comfortably. So thanks alot sir!

• says

Yes. He has only ever asked ‘simple’ discounts twice, and it was just 2 marks (as a tiny part of a question). He said either way would get the marks.

10. says

Could somebody help me why cost of discount is 4/96*100 and for year calculation times by 12/2.
I am just slightly confused as to why the 12/2 is used , I hear John saying in the lecture , that perhaps the receivable is paid in 2 months and I see the 12/2 , but in the actual wording of the question , it says they are considering a 4% discount if paid in one month, would this then mean a 4/96*100*12 giving a cost of discount of 50% ? … may look silly but I need to get it right in my head thanking you ..

• says

At the moment receivables take 3 months, but offering the discount means they pay in 1 month – so they are getting the money 2 months earlier. This is were the 2 months comes from (for 12/2)

• says

Thankyou John, makes perfect sense to me now but I just couldn’t see that when I looked at it , So it is the saving in time , 3 months they were paying and now paying in 1 month … Thank you

11. says

Dear John, I ‘d like to ask about the difference between your approach and Kaplan’s text book on annual cost of discount. Kaplan gives a formula which annual cost of discount = (1+discount / amount left to pay)^no. of periods – 1. The results are slightly different though. Is there any problem in the exams if we use your logic ???

• says

Strictly, what Kaplan writes is correct. However on the (only two) occasions that there has been a simple discount in the exam (as a tiny part of a question), the examiner has accepted the ‘quick’ way, even though it is not strictly accurate.

12. says

I find it funny that you keep promising the students that the numbers will be arriving soon! Are they like kids in a sweet shop, but their craving is numbers?!