Hi Dear tutor, I have some questions.
2015 June question number 3
Under BENEFIT
bad debt saved -------187250
(26750000*0.01*0.71)
under COST
bad debt(26750000*0.01*0.3)-80250
My question here is that why I do not recognise 80250 under COST?I only recignise saving under BENEFIT.
From my own point of view, the given sales on credit is after bad debt therefore we recover its 70%?Did i get it right?
My another question based on past papers 2018 December and 2011 December, questions respectively 32 and 2 part b and let us compare them because there are both recourse and non-recourse options.
Question 32
Based on recourse option
Under COST there is not bad debt already why?-From my point of view this is because the given sales on credit figure is after bad debt figure?did i get it right?
Based on non-recourse option-this is because under non-recourse option, the factor considers bad debt will be recovered and will be considered as savings which are understandable
Under BENEFIT there is bad debt saved 560000
Question 2
Based on recourse option
UNDER BENEFIT-this is because all bad debt have been already deducted from sales on credit and the question says it will be reduced from 0.9 to 0.6 therefore I consider it saving
Based on non-recourse already understable as I mentioned it above why,.
DEAR TUTOR, I prefer analysis when I solve question and it is part of my learning rather than learning it.
Need explanation if I misunderstood it.
Thanks in advance
BAD debt saved
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Past paper questions
6y ago#1June 2015 Q3: The question says that bad debts are reduced by 70%. So the saving is 70% x 1%. (They are currently costing 1% and in future will only cost 0.3%, so a saving of 0.7%.
Q32 Dec 2018:
On a with-recourse basis the bad debts will stay at 2%, therefore there is no extra cost or saving on bad debts by employing the factor.
On a non-recourse basis, the factor suffers any bad debts so the company will not suffer and will save the 2% bad debts by employing the factor.
Q2 Dec 2011:
Using the factor will reduce the bad debts by 0.3%. If it is with-recourse then the company will still suffer bad debts, but because they are 0.3% less than before they will save 0.3%.
If it is non-recourse, then the factor suffers the bad debts and so the company does have any bad debts and saves the full 0.9% that they are currently suffering.
Dear Tutor, what I would like to know when sales on credit is given together with bad debt percentage rate, I mean that these all bad debts are deducted from given sales on credit?If If 70% is reduced it means the it is already deducted from given sales on credit therefore we recover its only 70%?I have no any problem about solution but would like to know it did i get it right or not?
6y ago#3Why should they have been deducted from sales on credit???
You should know from Paper FA (was F3) that when there are sales on credit the full sales are recorded. Bad debts are not recorded until after they have occurred.
Understood all of them.Now it is clear.
6y ago#5You are welcome :-)
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