Income statement for the year ended 31 December 2020 000's 41140 37849 3291 365 2926 878...
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Income statement for the year ended 31 December 2020 000's 41140 37849 3291 365 2926 878 2048 Sales (all credit) Cost of sales Operating profit Finance cost Profit before tax Less tax Profit for the period Statement of financial position as at 31 December 2020 000's 13632 Non-Current Assets Current assets Inventory 5060 2019 000's 29392 26160 3232 274 2958 887 2071 2019 000's 12750 2640 Trade Receivables Total Assets Capital and Reserves 5050 23742 2420 17810 Share capital Reserves Non-current Liabilities 8% Loan notes Current Liabilities Trade payables Overdraft Tax Total current liabilities Equity and Liabilities 7000 5777 12777 2425 5225 2437 878 8540 23742 7000 4597 11597 2425 2100 801 887 3788 17810 Salt & Pepper Ltd is experiencing difficulties to manage its trade receivables. A factor has proposed the firm to manage its trade receivables at a fee of 2.5% of credit sales on a non-recourse basis. If the factor manages the trade receivables of Salt & Pepper Ltd, the firm will no longer need some administrative staff who are paid Rs370,000 per year. The factor will also ensure that trade receivables period falls to 25 days. According to the factoring agreement, Salt & Pepper Ltd would have to take an advance equivalent to 70% of the revised book value of trade receivables from the factor at an interest rate of 7.25% per year. The current level of bad debt of Salt & Pepper Ltd is 1.9% of credit sales. The firm pays interest at the rate of 5.75% per year on bank overdraft. (a) Calculate the value of the factor's offer and explain whether the factor's offer is financially acceptable to Salt & Pepper Ltd (work to the nearest thousand). (b) Explain the term 'overtrading' and discuss whether Salt & Pepper Ltd is overtrading, by using figures from the above financial statements. (c) Discuss whether bank overdraft is the best option to finance the increase in the operations of Salt & Pepper Ltd. Income statement for the year ended 31 December 2020 000's 41140 37849 3291 365 2926 878 2048 Sales (all credit) Cost of sales Operating profit Finance cost Profit before tax Less tax Profit for the period Statement of financial position as at 31 December 2020 000's 13632 Non-Current Assets Current assets Inventory 5060 2019 000's 29392 26160 3232 274 2958 887 2071 2019 000's 12750 2640 Trade Receivables Total Assets Capital and Reserves 5050 23742 2420 17810 Share capital Reserves Non-current Liabilities 8% Loan notes Current Liabilities Trade payables Overdraft Tax Total current liabilities Equity and Liabilities 7000 5777 12777 2425 5225 2437 878 8540 23742 7000 4597 11597 2425 2100 801 887 3788 17810 Salt & Pepper Ltd is experiencing difficulties to manage its trade receivables. A factor has proposed the firm to manage its trade receivables at a fee of 2.5% of credit sales on a non-recourse basis. If the factor manages the trade receivables of Salt & Pepper Ltd, the firm will no longer need some administrative staff who are paid Rs370,000 per year. The factor will also ensure that trade receivables period falls to 25 days. According to the factoring agreement, Salt & Pepper Ltd would have to take an advance equivalent to 70% of the revised book value of trade receivables from the factor at an interest rate of 7.25% per year. The current level of bad debt of Salt & Pepper Ltd is 1.9% of credit sales. The firm pays interest at the rate of 5.75% per year on bank overdraft. (a) Calculate the value of the factor's offer and explain whether the factor's offer is financially acceptable to Salt & Pepper Ltd (work to the nearest thousand). (b) Explain the term 'overtrading' and discuss whether Salt & Pepper Ltd is overtrading, by using figures from the above financial statements. (c) Discuss whether bank overdraft is the best option to finance the increase in the operations of Salt & Pepper Ltd.
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a To calculate the value of the factors offer and determine its financial acceptability to Salt Pepp... View the full answer
Related Book For
International Financial Reporting and Analysis
ISBN: 978-1408075012
5th edition
Authors: David Alexander, Anne Britton, Ann Jorissen
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