MAFA old may'2010 query

Shweta Garg (CA FINAL Executive(Payables))   (147 Points)

31 May 2010  

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

Is it a question of Factoring? and if its in our sylaabus?