Comments

  1. avatar says

    sir in above example we are already financing our receivables by 15%
    and factor will charge 18%
    so our extra cost should be 2% ??????????
    2%*50* 5million ???????????

  2. avatar says

    can someone explain to me the savings in interest part?? how did he calculate that??? credit sales are $2,500,000. so isnt receivables(current) supposed to be $2.5M????? how come it is $500,000

    • Avatar of John Moffat says

      The credit sales are indeed $2.5M during the year.

      But selling 2.5M during the year does not mean that 2.5M is owing to us at the end of the year – obviously most of the customers will have already paid !!!!!

      On average, debtors are taking 2.4 months to pay. So at any time, we are owed 2.4 months worth of sales. The sales per month are 2.5M/12, so 2.4 months worth of sales is 2.4 x 2.5M/12 = 0.5M. On average therefore we would expect receivables to be 500,000 throughout the year.

    • Avatar of John Moffat says

      The 2/12 is because the factor is taking 2 months to collect the debts, but is giving us 70% of the money immediately. So they are charging 2 months interest at 18% p.a.. The 2/12 is to calculate 2 months interest.

  3. Avatar of abujaan says

    Dear sir I just need advice from you as F9 contains 50% theory so if I attempt all theoratical questions first to save time because I do not need to think a lot about it and then calculation so I will have more time for numbers.Please suggest if this approach is good or not

    • Avatar of John Moffat says

      @abujaan, I think it is a good idea to attempt the written parts first.
      Leave the rest of the page in the answer booklet empty because often while you are doing the calculations, other points occur to you and you can always then add them to your answer.

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