Question

Lead Lights (Pvt.) Ltd is engaged in the business of manufacturing LED lights. The company recently supplied 10,000 LED lights to a newly constructed super mall. The total cost of the invoice totaled $45,000 with a total payment period of 30 days. Invoice was mailed and was received back duly stamped by the customer for endorsement or discounting.

15 days before maturity Lead Lights (Pvt.) Ltd discounted the bill with bank of Kingston. The discount rate prevailing in the market is 13% but due to good business relations the bank charged only 11% to the company. The bank charged 4% as factoring fee without any recourse liability and kept 5% of the accounts receivable as factor hold back. On due date the invoice was met in full.

REQUIRED: Compute the following:

1. Funds to be transferred to the company’s account.
2. Net proceeds to the company.
3. Loss on sale of accounts receivable.

Answer 1

1. computation of funds to be transfered to company's account-

Invoice amount =  45000

Less:

Discounted @ 11% = $45000*11% = ($4950)

Factor Fee@ 4% = $45000*4%*15/365= ( $74)

Factor hold back @5%= $45000*5% = ($2250)

Net amount to be transferred = 37726

2. Computation of Net proceeds to the company-

Invoice Amount = $45000

Less:

Discount = ($4950)

Factor Fee = ($74)

Net proceeds to the company = $39976

3. Computation of Loss on  sale of Accounts receivable-

Invoice Amount = $45000

Less:

Net proceeds to the company = ($39976)

Net loss in sale of accounts receivable= $5024