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only 1 problem im facing with this
the interest on advancement
I took 9% as it says 1% above the current overdraft rate (8%)but bpp did “1% * 8%”
Explain me John !
got it
80% is % of advancement
and 1% is the factor interest
but why he said “above the overdraft rate” ?
is this phrase a distractor? and why?Also,
BPP question 30 KXP Co (receivable discount)it says the remaining will not change their behavior (so remaining 20%)
but what is the days to multiply it with?
I’m confused with this bit of the question
otherwise all fine!Your first question:
The factor will charge 9%.
BPP sets out their answer in a different way to the way I do it (and I find their way more confusing!). However doing it the way I do will give exactly the same net benefit or cost (i.e. the difference between the costs and the benefit).Your second question:
There is a little trick here 🙂
Although it says that currently all sales are on 30 days credit, it does not mean that people actually pay in 30 days. Since the current receivables are 2,466, it means that they are currently taking 2,466/15,000 x 365 = 60 days to pay (and so with the new policy, 20% will still take 60 days to pay).
John getting different answers for Joan co 🙁
their net benefit is way smaller
they got $ 11,900
and I got $ 158,320I think they made a mistake by taking 0.01 as interest
sir im confused too
explain how u calculate the interest on advancement on this question
I’m getting different answer at the endIf you did it the way I do it in the lectures (which I find more sensible) then:
The current receivables are 3,800.
The new receivables are 70% x 3800 (because of the 30% saving) x 20% (because 80% comes in advance from the factor) = 532
So the interest saving is 8% x (3800 – 532) = 261.The interest payable to the factor = 9% x 80% x 70% x 3800 = 191
So the net interest saving is 261 – 191 = 70.
The way that BPP has done it, the net interest saving is 91 – 21 = 70.
All the other costs/savings are the same anyway, so the overall effect is the same.
(It is a very poorly worded question).
thank u sir
one last question on receivable management –
can we get numbers on invoice discounting? or is it just talking bits?Numbers would be very unlikely. It will be just being able to explain what it is.
Hi,
can you please explain why the book says that finance cost saving is 1,140 x 8%? It is unclear to me why it does not take into account receivable days ((3,800/15,600)x365). In my opinion the company only draws overdraft for the time receivables are outstanding and they are not outstanding entire 365 days, but 88,9 days, so the cost saving should be approx. 4 times lower.
Thank you.
Certainly, each individual receivable is only outstanding for 88.9 days. However sales are being made throughout the year and every sale results in receivables outstanding for that period.
Have you watched my free lectures on the management of receivables? If not then I do suggest that you do – the lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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