CA Intermediate · Financial Management and Strategic Management · Types of Financing
Sharma Traders sells goods on credit and factors its receivables of ₹20,00,000 with a factor on a without-recourse basis. The factor advances 80% of the receivables and charges a commission of 2% of the receivables. Ignoring interest, what is the net amount available to Sharma Traders immediately as advance after deducting commission from the advance?
The net immediate amount is ₹15,60,000. The factor advances 80% of ₹20,00,000, which is ₹16,00,000, and the 2% commission on the full receivables, ₹40,000, is deducted from this advance, leaving ₹15,60,000 available to Sharma Traders.
- A₹15,60,000Correct
- B₹16,00,000
- C₹15,20,000
- D₹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. Option ₹16,00,000 ignores the commission; ₹15,20,000 deducts commission twice.
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