[wafiyzariff]

Thanks a lot Sir,if you dont mind me asking,what is the journal entries for the transaction?

[wafiyzariff]

Thank you very much sir.

[wafiyzariff]

Yes Sir ,the question quoted the collection period reduced TO 60 days.

The Answer given:
Factoring
Adm Fee 153000
Redundancy 6000
cost of financing
i)12% x (60/365x 10.2) X 70% =140844
ii)9%. × 30% x (185/365 X 10.2) = 139586

Total cost=439430

No Factoring
Credit controller = 28000
Cost of financing TR = 9% × (185/365 × 10.2)
=465288
Total cost= 493288

~Therefore,the company should Factor their debt as it saves $53858

[wafiyzariff]

Interest in lower receivables

Current receivables
(185/365 × 10200000) : 5169863

New receivables
(60/365 × 10200000) : 1676712

Reduction : 3493151

Interest(9%) : 314384

??Admin saved(14000×2) = 28000

Savings : 28000+ 314384 = 342384

This is what I calculated.

•Interest advance
Extra cost
(12-9) = 3% × 1676712 × 70%
= 35211

Admin fee
(1.5% × (8.5m × 120%)) = 153000

Redundancy
(3000 × 2) = 6000

Cost : 35211 + 153000 + 6000
= 194211

Net benefit = 342384 – 194211
= 148173

I cannot compare my working with given answer because what im doing is calculating cost against savings,while the answer given gives me the calculations of the cost in doing Factoring or Didnt do Factoring

I am sorry for the inconveniences.

Is there any mistake at my calculations Sir.?

[wafiyzariff]

Thank you Sir

[wafiyzariff]

Thank you sir

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