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This is a sum from the BPP Revision Kit, Q6, Q page no.8, answer page no. 74.
Here since the customer wil have to penalty for failing to make the payment within the allocated time he will have to make a penalty payment, so in the solution why has this penalty payment been deducted. It is an income to the company, right ? and hence should be added.
There is no mention of any penalty payments.
If customers pay early then they get a discount, which means they pay us less.It is us who will pay the penalty – not the customer.
We pay a penalty if we fail to meet guarantees (which has a probability of 5%)Okay I thought they were talking about the customer not paying within 60days, hence triggering a penalty payment. I didn’t think it was us who had to make the penalty for not delivering in time.
Thank You very much for your time and help.what mean by
the ‘worst case’ scenario in one year is that a penalty of $420,000 is payable (more than 5% of operating profit).
how 5% of of operating profit ? how it is calculated , if there is any help ?
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