Hi all,
howz examz? plz help me with this problem asked in the paper. its question 1(b).
The credit sales and receivables of M/s M Ltd. at the end of the year are
{ estimated at Rs. 3,74,00,000 and Rs. 46,00,000 respectively.
The average variable overdraft interest rate is 5%. M Ltd. is considering a
proposal for factoring its debts on a non-recourse basis at an annual fee of 3%
on credit sales. As a result, M Ltd. will save Rs. 1,00,000 per year in
administrative cost and Rs. 3,50,000 as bad debts. The factor will maintain
a receivables collection period of 30 days and advance 80% of the face value
thereof at an annual interest rate of 7%. Evaluate the viability of the proposal.
Note : 365 days are to be taken in a year for the purpose of calculation of
receivables.
Is it a question of Factoring? and if its in our sylaabus?
CAclubindia
