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WQZ Co. Dec 2010 – part c

Forums › ACCA Forums › ACCA FM Financial Management Forums › WQZ Co. Dec 2010 – part c

  • This topic has 2 replies, 2 voices, and was last updated 11 years ago by rianna.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • November 16, 2013 at 11:14 pm #146395
    rianna
    Member
    • Topics: 9
    • Replies: 10
    • ☆

    In working out whether the proposed changes in receivables management will be acceptable.

    I am working out this part as

    Current
    Admin Cost 753000
    Bad Debt –
    Cost of Capital (18,000,000 x 5.5%) 990,000
    TOTAL 1,743,000

    Proposed
    Admin Cost –
    Bad Debt –
    Cost of Capital (12,600,000 x 5.5%) 693,000
    Settlement discount (87600000 x 25%) x 1% 219,000
    TOTAL 912,000

    net benefit of early settlement $1743000-912000=$831000

    queries:

    a. I am concern at this method that I am using because it does not reflex the step by step approach in the answer solution provided by the examiner but the only thing is that the net benefit comes back to their answer

    SHOULD I USE THIS METHOD TO WORK OUT THE CHANGES IN RECEIVABLES OR FOLLOW THE EXAMINER APPROACH?

    b. As I am using the method above CAN I WORK OUT THE MAXIMUM EARLY SETTLEMENT DISCOUNT THAT COULD BE OFFERED WITH THE FIGURES I HAVE. I am not sure how to work it out under the method I am using.

    THANKS

    November 17, 2013 at 7:44 am #146410
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    Your approach is fine – it would get full marks.

    To get the maximum discount, you can afford the total discount to increase by 831000 to 1,050,000.
    This will be equal to 87600000 x 25% x X%, where X is the discount.
    If you make the two equal you will get the value of X – the maximum % discount.

    November 18, 2013 at 8:30 pm #146665
    rianna
    Member
    • Topics: 9
    • Replies: 10
    • ☆

    Thanks

  • Author
    Posts
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