Homework Help is Here – Start Your Trial Now!
Business
Accounting
Casey Ltd sells branded jackets, supplies on a wholesale basis and has an annual turnover of $8,450,560. The company employs 2 people in its sales ledger and credit control department at an annual salary of $20,000 each. All sales are on 30 days' credit with no discount for early payment. Bad debts represent 1% of tumover and Casey Ltd pays annual interest of 8% on its overdraft. The most recent accounts of the company offer the following financial information: Statement of Financial Position as at 31 May 2020 so00 so0 25,600 Assets Non-Current assets Current assets Inventory of goods for resale Trade Receivables Cash 1,950 545 200 2.695 28,295 Total Assets Capital and Liabilities Ordinary shares Reserves 5,000 17.795 22,795 Non-Current Liabilities 10% debentures due 2010 1,000 Current Liabilities Trade payables Overdraft 2,000 2,500 Total Liabilities 6.600 28,295 Casey Ltd is considering offering a discount of 2.7% to customers paying within 10 days, which it believes will reduce bad debts to 0.8% of turnover. The company also expects that offering a discount for early payment will reduce the average credit period taken by its customers to 20 days. The consequent reduction in the time spent chasing customers where payments are overdue will allow one member of the credit control team to take early retirement. One-fifth of customers are expected to take advantage of the discount. Required Using the information provided, determine whether a discount for early payment of 2.7% will lead to an increase in profitability for Casey Ltd.

Casey Ltd sells branded jackets, supplies on a wholesale basis and has an annual turnover of $8,450,560. The company employs 2 people in its sales ledger and credit control department at an annual salary of $20,000 each. All sales are on 30 days' credit with no discount for early payment. Bad debts represent 1% of tumover and Casey Ltd pays annual interest of 8% on its overdraft. The most recent accounts of the company offer the following financial information: Statement of Financial Position as at 31 May 2020 so00 so0 25,600 Assets Non-Current assets Current assets Inventory of goods for resale Trade Receivables Cash 1,950 545 200 2.695 28,295 Total Assets Capital and Liabilities Ordinary shares Reserves 5,000 17.795 22,795 Non-Current Liabilities 10% debentures due 2010 1,000 Current Liabilities Trade payables Overdraft 2,000 2,500 Total Liabilities 6.600 28,295 Casey Ltd is considering offering a discount of 2.7% to customers paying within 10 days, which it believes will reduce bad debts to 0.8% of turnover. The company also expects that offering a discount for early payment will reduce the average credit period taken by its customers to 20 days. The consequent reduction in the time spent chasing customers where payments are overdue will allow one member of the credit control team to take early retirement. One-fifth of customers are expected to take advantage of the discount. Required Using the information provided, determine whether a discount for early payment of 2.7% will lead to an increase in profitability for Casey Ltd.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
100%
Casey Ltd sells branded jackets, supplies on a wholesale basis and has an annual turnover of $8,450,560. The company employs 2 people in its sales ledger and credit control department at an annual salary of $20,000 each. All sales are on 30 days' credit with no discount for early payment. Bad debts represent 1% of turnover and Casey Ltd pays annual interest of 8% on its overdraft. The most recent accounts of the company offer the following financial information: Statement of Financial Position as at 31 May 2020 Assets Non-Current assets $000 $000 25,600 Current assets Inventory of goods for resale Trade Receivables 1,950 545 Cash 200 2.695 28,295 Total Assets Capital and Liabilities Ordinary shares Reserves 5,000 17.795 22,795 Non-Current Liabilities 10% debentures due 2010 1,000 Current Liabilities Trade payables Overdraft 2,000 2,500 Total Liabilities 6,600 28,295 Casey Ltd is considering offering a discount of 2.7% to customers paying within 10 days, which it believes will reduce bad debts to 0.8% of turnover. The company also expects that offering a discount for early payment will reduce the average credit period taken by its customers to 20 days. The consequent reduction in the time spent chasing customers where payments are overdue will allow one member of the credit control team to take early retirement. On-fifth of customers are expected to take advantage of the discount. Required Using the information provided, determine whether a discount for early payment of 2.7% will lead to an increase in profitability for Casey Ltd.
Transcribed Image Text:Casey Ltd sells branded jackets, supplies on a wholesale basis and has an annual turnover of $8,450,560. The company employs 2 people in its sales ledger and credit control department at an annual salary of $20,000 each. All sales are on 30 days' credit with no discount for early payment. Bad debts represent 1% of turnover and Casey Ltd pays annual interest of 8% on its overdraft. The most recent accounts of the company offer the following financial information: Statement of Financial Position as at 31 May 2020 Assets Non-Current assets $000 $000 25,600 Current assets Inventory of goods for resale Trade Receivables 1,950 545 Cash 200 2.695 28,295 Total Assets Capital and Liabilities Ordinary shares Reserves 5,000 17.795 22,795 Non-Current Liabilities 10% debentures due 2010 1,000 Current Liabilities Trade payables Overdraft 2,000 2,500 Total Liabilities 6,600 28,295 Casey Ltd is considering offering a discount of 2.7% to customers paying within 10 days, which it believes will reduce bad debts to 0.8% of turnover. The company also expects that offering a discount for early payment will reduce the average credit period taken by its customers to 20 days. The consequent reduction in the time spent chasing customers where payments are overdue will allow one member of the credit control team to take early retirement. On-fifth of customers are expected to take advantage of the discount. Required Using the information provided, determine whether a discount for early payment of 2.7% will lead to an increase in profitability for Casey Ltd.
Expert Solution
steps

Step by step

Solved in 6 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Business analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS