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In chapter 3 page no 18 under the heading of The Financing Of Working Capital there is a sentence written
‘Short term finance is risky as it is repayable on demand’Can you please elaborate it? How come short term finance is risky?
Short-term finance is finance such as overdraft borrowing. It is risk for two reasons – one is that the interest being charged can fluctuate, and the other is the bank can demand repayment whenever they want (and the company might not have the cash available to reply it).
Long term borrowing is usually at fixed interest and is repayable on a fixed future date (so the company can plan ahead as to how they will repay).
I seems that though you may be using the lecture notes without watching the free lectures. If that is the case then it is pointless. They are lecture notes – not a Study Text – and it is in the lectures that I work through the examples and explain and expand on the notes. If you are not watching the lectures for any reason then you need to buy a Study Text from one of the ACCA approved publishers and study from there. (However you choose to study, it is essential that you buy a Revision Kit from one of the ACCA approved publishers (BPP and Kaplan), because they are full of past exam and other exam-standard questions for practice. Practice is vital to passing the exam.)
Thank you. I am watching your lectures along with your notes.
There is another problem i encounter today in chapter 4, in your lecture number 1 on EOQ you said that ‘The cost of holding will increase with the order quantity, the cost of ordering over the year will fall’
If we order in more quantity holding cost will eventually increase but how the ordering cost will fall?
Is it because we ordered in more quantity once so we won’t need to order more frequently. is this the reason?
Yes, that is the reason. The more we order each time then the fewer orders will be needed over the year.
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