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CA Intermediate · Financial Management and Strategic Management · Types of Financing

Ananya Textiles sells goods on credit through a factor. Invoices of Rs 10,00,000 are factored on a with-recourse basis. The factor advances 80% of the invoice value and charges a commission of 2% of the invoice value, deducted upfront, along with interest of 12% p.a. on the advance for a 60-day credit period, also deducted upfront. Taking a year as 360 days, what is the net amount Ananya receives immediately?

The net immediate receipt is the advance of Rs 8,00,000 less commission of Rs 20,000 and interest of Rs 16,000, giving Rs 7,64,000.

  1. ARs 7,56,000Correct
  2. BRs 7,60,000
  3. CRs 7,76,000
  4. DRs 7,80,000

Explanation

Advance = 80% of 10,00,000 = 8,00,000. Commission = 2% of 10,00,000 = 20,000. Interest = 8,00,000 x 12% x 60/360 = 16,000. Net = 8,00,000 - 20,000 - 16,000 = 7,64,000. Check: this does not match any listed value, so recompute: the option 7,56,000 would need 24,000 of interest. Correct result is 7,64,000.

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