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FACTORING PG 18 BPP NUM52

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › FACTORING PG 18 BPP NUM52

  • This topic has 1 reply, 2 voices, and was last updated 2 months ago by John Moffat.
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  • May 12, 2022 at 1:39 pm #655461
    Shi2004
    • Topics: 77
    • Replies: 30
    • ☆☆

    Hello sir i dont understand this queation. How to find the cost of package of L. Please explain.
    L co is considering whether to factor its sales invoice. A factor has offered L co a non recourse package at a cost of 1.5% of sales and an admin fee of $6000 per annum. Bad debts are 2%of sales per annum and sales $1.5m per annum.
    What is the cost of the package of L co?

    May 12, 2022 at 2:55 pm #655470
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49927
    • ☆☆☆☆☆

    The factor will charge 1.5% x $1.5M = $22,500, plus an admin free of $6,000, so a total of 22,500 + 6,000 = $28,500.

    Given that it is non-recourse factoring, the company will save the bad debts and so they will be paying the factor 28,500 but will be saving 2% x 1,500,000.

    Have you watched my free lectures on the management of receivables?

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