QUESTION TWO [24] 2.1 Modern Door Manufacturers, door manufacturer, sells on credit to retailers. The standard term of credit for approved credit applicants is 30 days (from the date of account) and a 5% cash discount if the account is settled within 10 days of date of account. Interest of 20% p.a. is charged on overdue accounts. An analysis of financial statements of Modern Door Manufacturers showed that the debtor collection period compared very poorly with the credit period allowed. List 5 ways in which Modern Door Manufacturers can rectify or improve the payment culture by debtors? (5) PowerPots is a retailer selling strong non-stick pots and pans. For the year purchases were as follows: February 200 units @ R250 each April 400 units @ R270 each August 300 units @ R280 each November 300 units @ R295 each 2.2. On 31 December 2019, there were 350 pairs of pots and pans in stock. Calculate the value of the final stock using the different methods as listed below? (7) (3) 2.2.1. Weighted Average Method 2.2.2. First in First out 2.3 Frozen Ice Ltd has annual, non-seasonal credit sales of R2 500 000. Customers are expected to pay within 30 days, but in fact have been settling in an average of 55 days. Frozen Ice Ltd experiences a bad-debt rate of 0.5% of debtors annually. The company's current overdraft facility is 2.5% above base-rate, which is at present 12%. Unfortunately, the overdraft limit has nearly been reached, and is unlikely to be extended. Frozen Ice Ltd has contacted We Help You Ltd, a factoring firm, and has been quoted: A factor charge of 1.5% of credit sales (Frozen Ice Ltd estimates that this would save R15 000 administration costs per year) An advance of 75% of invoices at 3% over base-rate. Required: Should the factoring firm, We Help You Limited, terms be agreed to? (9) 4 QUESTION TWO [24] 2.1 Modern Door Manufacturers, door manufacturer, sells on credit to retailers. The standard term of credit for approved credit applicants is 30 days (from the date of account) and a 5% cash discount if the account is settled within 10 days of date of account. Interest of 20% p.a. is charged on overdue accounts. An analysis of financial statements of Modern Door Manufacturers showed that the debtor collection period compared very poorly with the credit period allowed. List 5 ways in which Modern Door Manufacturers can rectify or improve the payment culture by debtors? (5) PowerPots is a retailer selling strong non-stick pots and pans. For the year purchases were as follows: February 200 units @ R250 each April 400 units @ R270 each August 300 units @ R280 each November 300 units @ R295 each 2.2. On 31 December 2019, there were 350 pairs of pots and pans in stock. Calculate the value of the final stock using the different methods as listed below? (7) (3) 2.2.1. Weighted Average Method 2.2.2. First in First out 2.3 Frozen Ice Ltd has annual, non-seasonal credit sales of R2 500 000. Customers are expected to pay within 30 days, but in fact have been settling in an average of 55 days. Frozen Ice Ltd experiences a bad-debt rate of 0.5% of debtors annually. The company's current overdraft facility is 2.5% above base-rate, which is at present 12%. Unfortunately, the overdraft limit has nearly been reached, and is unlikely to be extended. Frozen Ice Ltd has contacted We Help You Ltd, a factoring firm, and has been quoted: A factor charge of 1.5% of credit sales (Frozen Ice Ltd estimates that this would save R15 000 administration costs per year) An advance of 75% of invoices at 3% over base-rate. Required: Should the factoring firm, We Help You Limited, terms be agreed to? (9) 4
