CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based
Sharma Textiles factors invoices worth ₹10,00,000 with a factor. The factor advances 80% of the invoice value and charges a commission of 2% on invoice value, deducted at the time of advance. Interest is ignored. What net cash does Sharma Textiles receive at the time of advance?
Sharma Textiles receives ₹7,80,000. The advance is 80% of ₹10,00,000, which is ₹8,00,000, and the 2% commission on invoice value of ₹20,000 is deducted from it. The remaining 20% is retained by the factor as reserve until the debtors pay.
- A₹8,00,000
- B₹7,80,000Correct
- C₹7,60,000
- D₹9,80,000
Explanation
Advance = 80% × 10,00,000 = ₹8,00,000. Commission = 2% × 10,00,000 = ₹20,000. Net cash = 8,00,000 − 20,000 = ₹7,80,000. Check: 98% of invoice is 9,80,000 less 20% retained 2,00,000 gives 7,80,000. ₹8,00,000 ignores commission; ₹9,80,000 ignores the reserve.
Did you get it right without looking?
One question tells you little. A timed set on Raising of Funds - Non Fund Based shows your real accuracy, how long you take and where you lose marks.
More Raising of Funds - Non Fund Based questions
- Sundaram Engineering Ltd. seeks a performance bank guarantee of Rs 80 lakh. The bank, as per its sanction terms, takes a cash margin of 15% …
- Which statement about a bank's deferred payment guarantee (DPG) given on behalf of a borrower is correct?
- A contractor, Sharma Constructions, is awarded a road project by a state agency. The agency asks for assurance that if the contractor fails …
- Sundaram Textiles Ltd buys a machine for Rs 2 crore on deferred payment, backed by a bank DPG of Rs 2 crore. The bank charges a guarantee co…
- While assessing a request for a letter of credit limit for import of raw materials, which of the following is the most relevant basis for fi…
- A contractor gives the government a bank guarantee in place of a cash security deposit for a road project. Which type of bank guarantee is t…