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

Meera Traders sells a receivable book of Rs 20,00,000 to a factor on a with-recourse basis. The factor advances 80% of the invoice value, charges commission of 2% of invoice value, and interest at 12% p.a. on the advance for a 60-day credit period (take 1 year = 360 days). Commission and interest are deducted upfront from the advance. What net amount does Meera receive upfront?

Net upfront receipt is Rs 15,28,000 on the stated terms, but this is not among the options, so the question is flawed.

  1. ARs 15,08,000Correct
  2. BRs 15,20,000
  3. CRs 15,60,000
  4. DRs 15,68,000

Explanation

Advance = 80% x 20,00,000 = 16,00,000. Commission = 2% x 20,00,000 = 40,000. Interest = 16,00,000 x 12% x 60/360 = 32,000. Net = 16,00,000 - 40,000 - 32,000 = 15,28,000. Check: this differs from the options, so recompute: 16,00,000 - 72,000 = 15,28,000.

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