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The document outlines various financial calculations related to trade credit, including the amount of trade credit if a discount is not taken, the free trade credit, and the costs associated with extra trade credit. It also provides formulas for calculating the nominal and effective annual costs of trade credit, along with examples of financial problems related to accounts receivable and payable turnover, cash conversion cycles, and interest rates. Additionally, it includes exercises for calculating various financial metrics for different companies.

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5 views

377-381 (1)

The document outlines various financial calculations related to trade credit, including the amount of trade credit if a discount is not taken, the free trade credit, and the costs associated with extra trade credit. It also provides formulas for calculating the nominal and effective annual costs of trade credit, along with examples of financial problems related to accounts receivable and payable turnover, cash conversion cycles, and interest rates. Additionally, it includes exercises for calculating various financial metrics for different companies.

Uploaded by

santino987650
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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2.

If BMK did not take the discount and delayed the payment for additional 30 day, what is the
amount of trade credit?
3. How much is the free trade credit?
4. How much is the extra, additional or costly trade credit?
5. How much is the annual cost of the extra credit?
6. What is the nominal annual cost of trade credit?
7. What is the effective annual cost of the trade credit?

SOLUTION:
 List Price ¿ P200 per calculator
Discount ¿ (P6) ¿ 200 × 0.03
Net Price ¿ P194 per calculator

 If BMK took the discount and paid 15th day:

Accounts Payable ¿ (15 days)×(10 calculators)×(P194 net price) = P29,100

 If BMK did not take the discount and delayed the payment until 45th day:

Accounts Payable = (45 days) (10 calculators) (P194 net price) = P87,300

 The free trade credit is P29,100, which is the credit taken during the discount
period.

 The extra, additional or costly trade credit is P58,200, which is the excess over the
free credit.

Costly Trade Credit (CTC) = (P87,300 – P29,100) = P58,200

 The annual cost of the extra credit (ACOEC):

ACOEC ¿ (Daily purchase in Units) × (cash discount) × 365 days


¿ (10 calculators) (P200 – P194) (365) = 21,900

Cost of purchase Discount not taken:


=10 ×P200×365 = P730,000
 Cost of purchase Discount taken:
= 10×P194×365 = P708,100
ACOEC P21,900

 The nominal annual cost of trade credit:

ACOEC
NACOT =
CTC

P 21 , 900
NACOT ¿
P 58,200

NACOT = 37.629%

OR

% discount 365
NACOT ¿ ×
100 %−% discount Credit period−Discount period

3% 365
NACOT ¿ ×
100 %−3 % 45−15

NACOT = 0.0309278 × 12.166666

NACOT= 37.629%

 If the firm can borrow from other source for less than 37.629%, it should take
discount and use only.

 The effective annual cost of trade credit?


o Assume that 365 days ÷ 45 days = 8.111 months
EAC ¿ {¿
EAC ¿ {¿

EAC = 1.4444189 – 1
EAC = 44.441%
CHAPTER EXERCISE

NAME: SCORE:
SECTION: DATE:

Problem A: Carla Carlo Carol Company’s Statement of Comprehensive Income in 2023


presented Sales Revenue amounting to P 2,000,000 .00 and Cost of Good Sold of P
1,500,000.00. Its 2023 Statement of Financial Position shows inventory value of P 350,000.00,
accounts receivable of P100,000.00 and Accounts Payable of P 500,000.00. In 2022 statement of
financial position, the inventory, accounts receivable and accounts payable amounted to
P250,000.00, P300,000.00 and P300,000.00 respectively.
1. Calculate the Accounts receivable turnover.
2. Calculate the Inventory turnover.
3. Calculate the Accounts Payable Turnover.
4. Calculate the Average Receivable Period or Average Collection Period.
5. Calculate the Average Inventory Period.
6. Calculate the Accounts Payable Period.
7. Calculate the normal operating cycle.
8. Calculate the Cash Conversion Cycle.
PROBLEM B: Every working day, De Silva Company writes a check totaling to P17,000 to pay
its suppliers. The usual clearing time for the check is 4 days. De Silva on the other hand receive
payments from its customer every day, in the form of checks, totaling P28,500. The said cash is
available to the firm after two days.
1. What is the disbursement float?
2. What is the collection float?
3. What is the net float?
PROBLEM C: MSV Company borrowed P100,000 for 90 days period. The firm will repay the
P100,000 principal amount and P3,000 interest.
1. What is Annual Percentage rate of Interest?
2. What is the effective rate of interest without considering the compounding?
3. What is the effective rate of interest considering the compounding?
PROBLEM D: ReCAP firm borrowed P1,000,000 from the bank at a rate of 10% simple
interest with monthly interest payments and 365 day year.
1. What would be the required interest payment for a 30 day month?
2. What is the annual percentage rate?
3. If the interest is paid monthly, what would be the effective annual rate?
PROBLEM E: In a typical month, John Jownes Corporation receives 150 checks totaling
P135,000. These are delayed three days on average. What is the average daily float?
PROBLEM F: Ronda Company receives an average of P16,000 in checks per day. The delay in
clearing is typically 4 days. The current rate is 0.018 percent per day.
1. What is the Ronda Company’s float?
2. How much should Ronda be willing to pay today to eliminate its float entirely?
3. How much would be the average daily fees that Ronda Company is willing to pay to
eliminate the float entirely?

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