CMA Intermediate · Financial Management and Business Data Analytics · Financing Working Capital
Kaveri Traders has invoices of ₹10,00,000 factored. The factor advances 80% of invoice value and charges interest at 12% p.a. on the advance, for a credit period of 60 days (take 360-day year). Interest is deducted upfront. What is the interest charge for the period?
The interest is ₹16,000. The factor advances 80% of ₹10,00,000, which is ₹8,00,000, and charges 12% a year on it for 60 days of a 360-day year. That gives 8,00,000 × 0.12 × 60/360 = ₹16,000.
- A₹16,000Correct
- B₹19,200
- C₹20,000
- D₹24,000
Explanation
Advance = 80% × 10,00,000 = 8,00,000. Interest = 8,00,000 × 12% × 60/360 = ₹16,000. Using the full invoice value gives ₹20,000, which is wrong because interest accrues only on the advance.
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