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Hi John,
Firstly thanks for the lectures – very helpful and great service, I’ll spead the word!
I just have a quick question on example no 2 in the notes of Chapter 5.
Intially 30% of customers were taking 90 days to pay. After the proposed discount they estimate this will rise to 40%. I do not understand the logic of how an offer of an early settlement discount ismaking a greater number of customers to take longer to pay.
Maybe I am over thinking it and it is just asked liked this for the purpose of the calculation.
Thanks for your time.
Just to folllow on from that question, I have another one for example 5 (same chapter)
In the solution it states that new payables is 15/365 x $100,000 = $4,110
I thought that you should allow for the proposed discount and it should be calculated as follows: 15/365 x ($100,000 x 98.5%) = $4,048.
I know ultimately the answer is still the same – i.e. accept the discount, but is my understanding incorrect?
I agree it is a bit odd. Maybe some of those taking 60 days realise that they won’t be getting a discount and so decide to take even longer 🙂 (Maybe times are hard at the moment 🙂 )
However, don’t think too hard in the exam – use the figures that you are given.
With regard to your second question, I do actually state in the lecture that there are arguments both ways (for taking off the discount, and for not taking it off). Because of that the examiner has always made it clear that he accepts either (even though the final figures are a little bit different).
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