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|Youri Plc has the following opening and closing balances on its trade receivables budget for next year 2017.
Opening balance on trade receivables (invoiced on 31 Dec 2006) – £56,000
Closing balance on trade receivables (invoiced on 30 Nov 2007) – £72,000In 2007, credit sales are expected to be £276,000. The company offers a 10% discount on all amounts paid within one month of the invoice date. In 2007 the company expects 50%of eligible trade customers to take advantage of this discount.
How much cash does Youri Plc expect to receive from customers during the year?
The answer is £243,400 but I can’t understand how to find the amounts for November and December.
Thank you.
Does your Revision Kit not give workings for the answer??
Had there been no discounts, then the cash received would have been 56,000 + 276,000 – 72,000 = 260,000.
However there are discounts. Since the opening balance was invoiced on 31 December, 50% of these will get the discount.
Therefore the discount for the year is 10% x 50% x (56,000 + 276,000) = 16,600.Therefore the cash received is 260,000 – 16,600 = 243,400
(The closing receivables are irrelevant for the calculation of the discount because they are part of the total invoiced of 276,000. This is all really more of a Paper F3 question than Paper F2).
Sir thank you for the answer. I don’t still understand why the closing receivables have not been included? Can you break it down by month by month so as to understand it better?
Thank you.
It is neither necessary nor possible to break it down month by month!!!!
The closing receivables must be sales that have been made during the year but have not yet paid – they must be part of the sales of 276,000. It cannot possibly be otherwise.
Given that they had been invoiced on 30 November, then 50% of them will have paid in December and therefore got the 10% discount – so 50% of all of the sales in the year of 276,000 will have had the discount.
(Had the closing receivables been invoiced on 31 December, then none of them would have paid and none of them would have got the discount, and so the discount would have been calculated on the 56,000 plus the 276,000 less the 72,000)
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