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This Accounting Materials are brought to you by www.everything.freelahat.com CHAPTER 15 CASH MANAGEMENT [Problem 1] 1. Amount of money in the float = P420,000 x 6/7 = P360,000 2. Income from money market placements (P420,000 x 4/7 x 24%) P57,600 Annual cost of weekly pick -ups (60,000 ) Net disadvantage of weekly pick-ups P (2,600 ) 3. Income from money market placements (P420,000 x 2/7 x 24%) P28,800 Annual cost of bank charges (45,000 ) Net disadvantage of collection through the bank network P(16,200 ) [Problem 2] 1. Effective interest rate = ? a. EIR = 30% b. EIR = (19%/80%) = 23.75% c. EIR = [ (P105,000 – P8,000) / (P500,000 x 80%) ] = 24.25% d. EIR = [ 16% / (100% - 15% - 16%) ] = 23.19% e. EIR = [ (P90,000 – P6,750) / (P500,000 x 67%) ] = P83,250 / P335,000 = 24.85% f. EIR = [ (P90,000 – P6,750) / (P500,000 x 67%) ] = 24.85% g. EIR = [(P90,000–P2,250) / (P500,000-P90,000-P25,000)] = P87,750 / P385,000 = 22.79%
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This Accounting Materials are brought to you by www.everything.freelahat.com 2. The best loan package for Tribal Hat Company is package "g" with the lowest effective interest rate of 22.79%. [Problem 3] 1. Reduction in cash float = P600,000 x 5 days = P3 million 2. Opportunity cost = P3M x 12% = P360,000 3. Benefit from reducing the float P360,000 Cost of the lock-box system 125,000 Net advantage of the lock-box system P235,000 [Problem 4] 1a. Flat fee ( P80 x 12) P 960 Variable fee [P0.10 x (P10.8M/P1,000)] 1,080 Opportunity cost in compensating balance ( P50,000 x 9%) 4,500 Annual cost of the lock-box system P6,540 1b. Decrease in A/Rec. balance [P10.8 million x (1/360)] = P30,000 The collection is accelerated by a day. 2. Other factors to be considered in the analysis: a. Possible reduction in the cash float. b. Use of other collection strategies such as concentration banking, electronic fund transfer, electronic fund transfer on- point-of-sale (EFTOS), automated clearing house, depository transfer check, and the like . c. Delay in the reduction of recording receivables thus affecting customer 's attitude. e. Impact of changes in costs in the main office.
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This note was uploaded on 08/26/2010 for the course DOA 506 taught by Professor Kim during the Spring '10 term at University of Santo Tomas.

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chapter-15 - This Accounting Materials are brought to you by

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