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Relevant when assessing the bad debt allowance for RECEIVABLES.
Tom buys a chair from a shop for 1,000 on 30 days credit – financing component NOT SIGNIFICANT
Mary buys an identical chair from a shop for 1,500 on 4 years ‘interest free’ credit. Interest free is of course a marketing ploy! SIGNIFICANT FINANCING COMPONENT
So where is the dividing line? A judgement call, but more than one year’s credit is what I would go for.
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