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Hi sir,
May I ask why is the proposed level of receivables = (4,000,000 – 266,667) x (26/365) = 283,000 instead of 4,000,000 x (1/3 x 26 + 2/3 x 14) / 365 = 197,260 since two-thirds of the customers are taking the discount which means they are paying within 14 days? I don’t quite get it.
It is because the question says that “the average credit period taken by customers is 26 days”.
So in arriving at 26 days they have already taken into account that some will take longer and some will pay quicker. 26 days is already the average.
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