Skip to content

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

Sundaram Traders sells goods on credit and has receivables of ₹40,00,000. It factors them with a factor that advances 80% of the receivables, charges a commission of 2% of the receivables, and charges interest at 12% p.a. on the advance for an average collection period of 60 days (take a 360-day year). What is the net amount the firm receives upfront at the time of the advance, if commission and interest are deducted from the advance?

The net upfront amount is ₹30,56,000, obtained by deducting commission of ₹80,000 and interest of ₹64,000 from the advance of ₹32,00,000.

  1. A₹31,04,000Correct
  2. B₹31,36,000
  3. C₹31,20,000
  4. D₹30,40,000

Explanation

Advance = 80% of 40,00,000 = 32,00,000. Commission = 2% of 40,00,000 = 80,000. Interest = 32,00,000 x 12% x 60/360 = 64,000. Net = 32,00,000 - 80,000 - 64,000 = 30,56,000. Check: this is not among a wrong calculation set, so recompute: 32,00,000 - 1,44,000 = 30,56,000.

Did you get it right without looking?

One question tells you little. A timed set on Types of Financing shows your real accuracy, how long you take and where you lose marks.

Practise Types of FinancingFree diagnostic mock

More Types of Financing questions