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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Working Capital
Hello John,
W Co has a annual credit sales of $ 4,500,000 and on average customers take 60 days to pay,
assuming a 360 a year. As a result , W Co has a trade receivables balances of $ 750,000. The company relies on overdraft to finance this at an annual interest rate of 10%.
W Co is offering an early settlement discount of 1% for payment in 30 days.It expected that 25% of its customers( representing 35% of the annual credit sales) will pay in 30 days in order to obtain the discount.
What is the net impact?
1. The answer is $2,625.
2. In the answer, 35% has been used and not 25%
3. Could you explain why?
Thanks
The number of customers taking the discount is irrelevant. The total amount of the discount depends on the amount of the sales paid within 30 days, and 35% of the sales are paid for within to days (whether they are all sold to just one customer or to 100 customers).