PNP PLC june 2007

I don’t really know why you are bothering with this question because it is from 10 years ago and the style of the examiner has changed since then 🙂

However, to start you off:

The benefits (increased contribution and fewer bad debts) should be clear from the workings in the answer.

As far as the costs are concerned. since the current class 1 receivables are 200,000 and the payment period is 30 days, the total sales relating to these receivables must be 365/30 x 200,000 = $2,433,333 per year. Currently there is a discount of 1% but since this will increase to 1.5%, then over the year the extra cost will be 0.5% x $2,433,333 = $12,167.

The sales relating to the current class 2 receivables, in the same way, must be 365/60 x 252,000 = $1,533,000. At the moment these fo not get any discount, but in future 50% of them will become class 1 and will therefore get 1.5% discount. So the extra cost here will be 1.5% x 50% x $1,533,000 = $11,498

The rest of the extra costs are following the same sort of logic.

Although this is the hardest question that has ever been set on the management of receivables (and it is extremely unlikely that he will set something so hard again), the logic involved is not really any different than what I go through in my free lectures on the management of working capital. If you have not watched the lectures then I do suggest that you do – the lectures are a complete free course for Paper F9 and go through everything needed to be able to pass the exam well.

You should buy a current edition of a Revision Kit from one of the ACCA approved publishers and practice every question in it.

The reason it is important that you have a current edition is because over the years there have been changes to the syllabus and to the format of the exam.

You cannot concentrate just on specific areas – all of the topics will be examined somewhere in the exam which is why practicing every question in the Revision Kit is so important.

You are welcome 🙂