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Category > Business & Finance Posted 23 Jun 2017 My Price 9.00

AAD is a newly created subsidiary of a large listed entity

AAD is a newly created subsidiary of a large listed entity. It commenced business on 1 October 2004, to provide specialist contract cleaning services to industrial customers. All sales are on credit. More favorable credit terms are offered to larger customers (class A) than to smaller customers (class B). All sales are invoiced at the end of the month in which the sale occurs. Class A customers will be given credit terms requiring payment within 60 days of invoicing, while class B customers will be required to pay within 30 days of invoicing. Since it is recognized, however, that not all customers comply with the credit terms they are allowed, receipts from trade receivables have prudently been estimated as follows:

 

Customer type

Within 30 days

31 to 60 days

61 to 90 days

91 to 120 days

Bad debts

Class A

 

50%

30%

15%

5%

Class B

60%

25%

10%

 

5%

The above table shows that trade receivables are expected either to pay within 60 days of the end of the credit period, or not at all. Bad debts will therefore be written off 60 days after the end of the credit period. Budgeted credit sales for each class of customers in the first 4 months of trading are as follows:

 

Customer

October

November

December

January

 

$000

$000

$000

$000

Class A

100

150

200

300

Class B

60

80

40

50

Assume all months are of 30 days.

Requirements

(a) Prepare a statement showing the budgeted cash to be received by AAD from trade receivables in each of the three months of November 2004, December 2004 and January 2005, based upon the prudently estimated receipts from trade receivables.

(b) Prepare a budgeted age analysis of trade receivables for AAD at 30 January 2005 for each of the two classes of customer. It should show the total budgeted trade receivables outstanding at that date analyzed into each of the following periods:

(i) within credit period;

(ii) up to 30 days overdue;

(iii) 30 to 60 days overdue.

(c) Explain the purposes of entities preparing an age analysis of trade receivables analyzed by individual customers.

 

 

Answers

Alpha Geek
(8)
Status NEW Posted 23 Jun 2017 03:06 PM My Price 9.00

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file 1498231946-865706_1_636337326752079299_ADD-COMPANY-ON-22-JUNE-2017.xlsx preview (112 words )
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