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(b) On 1 October 20X0, Jedders signed a receivable factoring agreement with a company Fab Factors. Jedders’
trade receivables are to be split into three groups, as follows.
• Group A receivables will not be factored or administered by Fab Factors under the agreement, but
instead will be collected as usual by Jedders.
• Group B receivables are to be factored and collected by Fab Factors on a ‘with recourse’ basis. Fab
Factors will charge a 1% per month finance charge on the balance outstanding at the beginning of the
month. Jedders will reimburse in full any individual balance outstanding after three months.
• Group C receivables will be factored and collected by Fab Factors ‘without recourse’; Fab Factors will
pay Jedders 95% of the book value of the debtors.
Jedders has a policy of making a receivables allowance of 20% of a trade receivable balance when it
becomes three months old.
The receivables groups have been analysed as follows.
% of 1 October 20X0 balance collected in:
Balance @ 1 Oct 20X0 October November December
$’000
Group A 1,250 30% 30% 20%
Group B 1,500 40% 30% 20%
Group C 2,000 50% 25% 22%
Required
For the accounts of Jedders, calculate the finance costs and receivables allowance for each group of trade
receivables for the period 1 October – 31 December 20X0 and show the financial position values for those
trade receivables as at 31 December 20X0.
sir could you help me understand and how to solve?answer
INCOME STATEMENT
$
Receivables allowance
Group A (20% × (1,250 × 20%)) 50,000
Group B (20% × (1,500 × 10%)) 30,000
Group C nil
80,000
Finance charge
Group A nil
Group B (1% × 1,500) + (1% × 900) + (1% × 450) 28,500
Group C (5% × 2,000) 160,000Again, you have given me the answer – so please identify which part of the answer is causing you a problem
sorry sir how to calculate receivable allownce and finace charge for b who do we get 10% and c
In your line that reads “$1,500 40% 30% 20%” that adds up to 90%. Where’s the other 10%? It’s the 10% that is still outstanding after 3 months!
In Group “c” we have sold the Receivables without recourse. All the risks and rewards of ownership have been sold and these are no longer our receivables. That’s why there are none of these balances outstanding as at the end of the year
Better?
For Group “b”, 40% of $1,500 is going to be received in September and 30% in October.
So, at the beginning of September, there will be $1,500 outstanding, at the beginning of October there will be $900 outstanding and at the beginning of November that’s will be $450 outstanding. If the debt is not collected in three months, it will be passed back to Jedders so no more finance charge after November
Ok?
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