Marks question 3 jaya sdn bhd has annual credit sales

(2 marks)
Question 3
Jaya Sdn Bhd has annual credit sales of RM2,100,000 and allows 90 days credit. Jaya is
considering introducing 2% cash discount for payment within 20 days and reducing the credit
period to 60 days. 55% of its customers are expected to take advantage of the discount. Jaya
estimates that it sales will increase by 10% and it is expected that Jaya will generate RM15,000
of additional profit from the increased sales. The opportunity cost of funds invested in accounts
receivable is 10% per annum. Assume 360 days in a year.
Explain whether Jaya should approve the proposed policy. (support your answer with
computations).
Question 4
Halal Foods Sdn Bhd (Halal Foods) sells frozen foods to restaurants and mini markets on credit
basis. Halal Foods is currently reviewing its accounts receivable management. The total sales
for the year 2019 amounted to RM3,000,000. At present, Halal Foods is giving a 3/15, net 40
credit terms to its customers. About 30% of its customers take up the discounts offered. Based
on the accounts receivable ageing report, Halal Foods estimates that two percent of these total
sales will be uncollectible.
The credit department proposes that Halal Foods to consider changing its credit terms to 5/10,
net 35 to speed up the collection and alleviate the cash flows. Under this new credit terms,
Halal Foods expects the sales will increase by 40% and the number of customers taking up the
discounts will be doubled from the current percentage. The bad debts however are estimated to
remain at the two percent level.
Required:
i. Based on the new credit terms, calculate the followings:
a. Cost of bad debts
b. The amount of discounts taken up by customers
(2 marks)
ii. Compute the annualized opportunity cost of giving the discounts to customers under
present and new credit terms.
(2 marks)
iii. Based on your answer in (ii) above, determine the appropriate credit terms that Halal
Foods should offer to its customers.
(1 mark)

36
3.4 Management of Current Liabilities (Short-term
Financing)
Question 1
Kasturi Inc. has just purchased goods from Kenchana Inc. on the following credit terms 2/10 net
30.
i. Assuming Kasturi Inc. does not want to accept the discount, determine the effective annual
cost of not taking the discounts.
(2 marks)
ii. Determine the rate that Kasturi Inc. need to pay for trade credit if Kasturi Inc. pays to
Kenchana Inc. by day 10.
(1 mark)
iii. Lately Simma Bank Berhad has agreed to lend enough money to allow Kasturi Inc. to take
the discount offered. The loan provides a stated 12% interest rate and a 20%
compensating balance.