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!

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

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.

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 ?

@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)

dear sir,
after listening to the tuition i tried answering the following question but im not getting the correct answer. can you please help me out.
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.
thanks in advance

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

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.

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

annchen 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!

cris1993 says

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

Talal 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

aelsewy 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.

amal123 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 ?

John Moffat 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)

omoworare says

cool

chicababes1991 says

dear sir,

after listening to the tuition i tried answering the following question but im not getting the correct answer. can you please help me out.

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.

thanks in advance

John Moffat 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.

chicababes1991 says

@johnmoffat, thank you so much sir

serina1800 says

perfect, thank you

wendy2001 says

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

John Moffat says

@wendy2001, What you say is true, but the examiner usually words it in the same way as me

undisputed says

I am facing a challenge of not managing to download the video.

admin says

@undisputed, Videos are for watching on line, not downloading

aboobucker says

rely nice…he hs drilled it in our brain:)

tameablebunchy says

The lecturer has worked examples 4 and 5 or you can check the answers in the back of notes.

winwithascent says

@tameablebunchy, hi can you please tell me where the lecturer has worked out examples 4 and 5.

thanks

tameablebunchy says

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

vbalande says

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

tameablebunchy says

@vbalande, Check the answer section in the back of the lecture notes.

suresh320 says

very nice, I understand the concept now..

zsolt8007 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

tameablebunchy 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.

praveenkaur says

Thanks

annick says

this session was very productive

nyambira 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

charongwa says

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

mosingh says

help, video stops at 7.38, is there a problem?