ACCA F9 Management of Receivables – Simple settlement discount
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Hi sir
I am ok with calculations but I am confused with concept.
Overdraft is the rate that bank charge us and in question we calculate effective interest rate over the remaining period.
This effective rate we should charge customer for remaining 2 months.
Bank charge us20% and we charge customer 27.76%
So with this concept discount is allowed?
also Sir, isn’t the actual amount of the overdraft a factor that will determine whether we should offer the discount
No – it is not relevant.
ok thank you
Dear Sir, i understand the effective interest calculation, but how is this related to the overdraft interest?
You will compare it to the overdraft interest rate to decide which is cheaper – offering a discount so as to get money sooner and therefore pay less overdraft interest, or not.
Thank you sir, I get it now 馃檪
You are welcome 馃檪
Hello Sir,
The calculation used in simple settlement discount is (i/1-i) instead of (i/n). Is it because the calculation is of effective cost and not effective interest that there is this difference in formula ?
I do not understand what you are asking. You should not simply learn formulae – the exam tests that you understand what you are doing and my answer to the question is correct,
Thanks for your prompt reply sir. Forgive my long winded question, but I was trying to understand the calculation of effective cost about why do we divide the concerned interest (eg, 4% discount allowed) by 96% instead of the number of periods.
I do explain this in the lecture 馃檪
If have an invoice for $100 and you pay now then you only pay $96. By delaying payment you pay an extra $4. And so it is like paying interest of $4 on every $96 delayed.
Good morning.
Are these the new lectures for the June 17 exam?
Yes, they apply for all the 2017 exams.