Answer to Question #66158 in Finance for john iyinbor

Question

Opening trade receivables (debtors) are £160,000 (see opening statement of financial position). It is expected that £77,000 will be received from debtors during April 2015 and £83,000 during May 2015.
All credit customers (debtors) are allowed 2 months credit as standard. However, all credit customers are also offered a 5% cash discount for early settlement (i.e. payment received during the month of sale). It is anticipated that 50% of customers will take advantage of the offer.
As prudent measures, an expected 1% of monthly credit sales should be written off to bad debts at the end of each 2 months credit period and a doubtful debts provision of £1,500 should be made at the year – end.
calculate the cash sales discounted price.

Answer 1

It is expected that £77,000 will be received from debtors during April 2015 and £83,000 during May 2015. All credit customers are also offered a 5% cash discount for early settlement. It is anticipated that 50% of customers will take advantage of the offer. An expected 1% of monthly credit sales should be written off to bad debts at the end of each 2 months credit period and a doubtful debts provision of £1,500 should be made at the year – end.
The cash sales discounted price is (77,000*(0.5*0.95 + 0.5) + 83,000*(0.5*0.95 + 0.5))*0.99 - 1,500 = 152,940.