CMA Intermediate · Financial Management and Business Data Analytics · Receivable Management
Sharma Textiles factors invoices of Rs 20,00,000. The factor advances 80% of the invoice value and charges a commission of 2% of invoice value, deducted at the time of the advance. What is the net cash advance received by Sharma Textiles?
The net cash advance is Rs 15,60,000. The factor advances 80% of Rs 20,00,000, which is Rs 16,00,000, and deducts a 2% commission of Rs 40,000 on invoice value. Subtracting the commission from the gross advance gives Rs 15,60,000.
- ARs 15,60,000Correct
- BRs 16,00,000
- CRs 15,68,000
- DRs 16,40,000
Explanation
Advance = 80% of 20,00,000 = 16,00,000. Commission = 2% of 20,00,000 = 40,000. Net advance = 16,00,000 - 40,000 = 15,60,000. Rs 16,00,000 ignores the commission deduction.
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