# Management of Receivables and Payables Example 2 and 3

 View all ACCA Paper F9 lectures >> This ACCA F9 lecture is based on OpenTuition course notes, view or download lecture notes here>>

1. says

I have computed the savings as follows: actually we have managed to reduce our receivables only for 40% of the receipts (20% were already paying within 30 days); this means that we will obtain 40% of the sales of 20 mio 30 days earlier than normal, hence savings would be: 40% x 20 mio x 15% x 30/365 = 98k (difference to the result in the book is round 20k). Could you please advise as to where I am wrong? Thanks!

2. says

Good Work Opentution,,, Just Great ! but what about payables i don’t have any grip on that ..

3. says

Very nice ….. i have learn a lot from this lecture …
Can there be a question whether to factor or to offer discount , as far as i have done only question deciding whether to offer or not the discount or whether to factor or not …? Thank you

4. says

Dear sir, u dnt talk about payables and i found questions about it and also there is something called APR it is a formula and i have different examples and after listening to the lect still i cant solve it so please reply what i can do.
Thanks.

5. says

There is a formula in my book
It is percentage of cost of the discount = 1-[100/100-2] x 365/20
Is it just another method of finding out if settlement discount should be taken? or is it something else ?

• says

@amal123, It is the same as what I have done in my lecture!
(Although obviously it is based on days and not months, and it is only correct if the discount is for paying 20 days earlier than otherwise)

6. says

dear sir,
paisley co has sales of \$20 million for the previous year, receivables at the end of \$4 million and the cost of financing receivables is covered by an overdraft at the interest rate of 12% p.a. it is now considering a cash discount of 2% for payment of debts within 10 days. should it be introduced if 40% of customers will take up the discount??
my answer was cost of discount \$160 000 and savings p.a \$261699
4m/20m x 365= 73 days
73 days x 60%= 43.8 days
20m x 43.8/365= \$2.4 m
new receivables
10 x 40%= 4
4/365 x 20m= \$219178

2400000-219178=2180822
2180822x 12%= 261699

cost of discount 20m x 2% x 40%= \$160 000
savings p.a= \$261699

the answer in the book is savings of \$165699
can you please tell me where is my mistake.

• says

@chicababes1991, Currently receivables are 4M (we assume that they are at this level throughout the year)

The new receivables will be :

not taking discount: 60% x 73/365 x 20M = 2.4M

plus

taking discount: 40% x 10/365 x 20M = 219,178

So new recbles in total = 2400000 + 219178 = 2619178

So interest saving is 12% x (4M – 2619178) = 165699

(current recbles are 4M throughout the year. In future they will be 2619178 throughout the year. So the interest saving is 12% of the difference,)

Hope that helps.

7. says

Example 2,60% customers take advantage of the discount, precisely it makes more sense if it is 60% of sales instead of customers.

• says

@winwithascent, Please look at the answer to examples in the back of the lecture notes. you will see the worked example there.

8. says

Has anyone worked out examples 4 and 5? Just want to check if my calculations are correct

9. says

Calculation of the new receivables after ofering the discount in example 2 should use 99 % of the \$20m (as opposed to \$20m) multiplied by 54/365 as that is the new sale p.a.. Any thoughts? Thank you

• says

@zsolt8007,

If I understood it correctly you are trying to ascertain whether its worth giving the discount and you have to consider the full receivables, I believe the only time you use a percentage is if the question had said receivables is 20m and we have already collected 1m. Commentst anyone.

10. says

this is the only time i have really enjoyed my F9 through the lectures by John Moffat because i understand the concept behind and its now easier for me to tackle most questions
Thank you May God bless you

11. says

the decision is to employ factor not to offer discount.Really enjoying these.wil conquer F9 this time around