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CA Intermediate · Financial Management and Strategic Management · Management of Receivables

Gupta Textiles factors an invoice of ₹10,00,000 payable after 60 days. The factor withholds a reserve of 20% of the invoice, charges commission of 2% of the invoice value, and advances the balance (invoice less reserve and commission). Interest at 12% p.a. (360-day year) on the advance is deducted upfront. The cash received immediately by Gupta is:

Gupta receives ₹7,64,400 immediately. The advance is the invoice of ₹10,00,000 less a ₹2,00,000 reserve and ₹20,000 commission, which is ₹7,80,000. Interest for 60 days at 12% on that advance is ₹15,600, and deducting it leaves ₹7,64,400.

  1. A₹7,64,400Correct
  2. B₹7,80,000
  3. C₹7,60,000
  4. D₹7,84,000

Explanation

Reserve = ₹2,00,000; commission = ₹20,000; advance = ₹7,80,000. Interest = 7,80,000 x 12% x 60/360 = ₹15,600. Net cash = 7,80,000 - 15,600 = ₹7,64,400. Giving ₹7,80,000 ignores interest, and ₹7,60,000 wrongly charges 2% interest on the whole invoice.

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