Comments

  1. avatar 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,

  2. Avatar of aishaasad 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

    • Avatar of johnmoffat 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 :-)

  3. avatar 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,,,

      • avatar 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

  4. avatar 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!

  5. avatar 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 ..

      • avatar 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

  6. avatar 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 ???

    • Avatar of johnmoffat 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.

  7. avatar says

    Hi, John…Really find your lectures extremely helpful and easy to understand. Though sometimes I feel that the questions in past papers are of a higher level of difficulty or are more complicated or require a deeper/more detailed level of understanding than is covered in the lectures… Just a feeling, maybe I am wrong…I mean no complaints :) I just want to be sure if these lectures with the notes are enough to pass the F9 exam (of course with exam questions practice) or would I also need to refer to a text book like BPP or Kaplan? Plus any guess for June 2013 F9 paper topics to give special attention to? :) Would appreciate your comments. Thank you for your time.

    • Avatar of johnmoffat says

      Although exam questions require more reading, the arithmetic is not more complicated and nor do they require a deeper level of understanding. The purpose of the lectures is to explain the topic and the approach – it is then important to practice as many past exam questions as possible. If you do have a text book, then the more reading the better, but our notes and lectures are enough on their own to pass the exam – provided you really do understand them and provided you practice lots of questions.

      That is why we have also started uploading recordings answering past exam questions – you can find the link to them on the main F9 page.

      Our guesses for the June exam were uploaded onto the main F9 page last week.

  8. Avatar of chiclarence says

    hi, i have a problem understanding how part of question 2c of the december 2008 exam has been answered. the question on calculating the interst of the factor’s advance to the company: part of the question is:
    A factor has offered to take over the administration of trade receivables on a non-recourse basis for an annual fee of
    3% of credit sales. The factor will maintain a trade receivables collection period of 30 days and Gorwa Co will save
    $100,000 per year in administration costs and $350,000 per year in bad debts. A condition of the factoring
    agreement is that the factor would advance 80% of the face value of receivables at an annual interest rate of 7%.
    part of the solution is
    the receivables under factor = 37,400,000 x 30/365 = $3,074,000
    Extra interest cost on advance = 3,074,000 x 80% x (7% – 5%)
    the part i havent understood is how the interest is calculated. why (7% – 5%)
    can someone explained this to me pls

    • Avatar of johnmoffat says

      It is because if they did not use the factor then they would be paying overdraft interest at 5%. Using the factor, they are paying interest at 7%, which is 2% more.
      I prefer the approach in my lectures – it will give the same final result and get the full marks.

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