Current Liabilities

Illustration 1

The credit terms of 2/30, net 60 was recently offered to Be Pe Jay Sdn Bhd (BPJSB).
However the company is experiencing cash flow problems. In order to accept the supplier’s
offer and pay within the discount period BPJSB needs RM500,000. BPJSP is considering
four options provided by the local banks:

Bank AA : Interest charged at 16% per annum, paid at the end of the loan
period of 6 months and a 20% compensating balance
requirement.

Bank BB : Interest charged at 12% per annum paid in advance and a 15%
compensating balance requirement for 6 months. Currently BPJSB
maintains RM2,500 in BB bank’s accounts.

Bank CC: A line of credit of RM 800,000 for 6 months at an interest rate of 13%
and a commitment fee of 3% on the unused balance.

Bank DD: A commercial paper issue of RM500,000. Commercial paper will carry
a 180- day maturity and require interest rate of 12% per annum.
Floatation cost of RM1500 will be incurred.

Required:

Advise BPJSB on which alternative that should be selected and provide the reasons?

Illustration 2

Question 1

Suria Enterprise sells computer software to its clients on credit terms of net 45. the firm’s
average monthly sales are RM200,000 and the average annual receivables are RM400,000.
the firm’s customers are given 1.5 months’ credit. It pledges all its receivables to a bank,
which has agreed to advance up to 75% of the face value of the receivables at 2% over its
prime interest rate and at 1% processing charge. Suria enterprise borrows the maximum
amount possible. The current prime rate is 8%. What is the cost to suria for the credit
obtained?

Question 2

Melati Bhd has factored RM200,000 of its accounts receivable with a 60 day credit term. The
factor charges a 1.5% fee, a 7% reserve and interest at 2% per month on advances. What is
the maximum loan or advance that the firm can reserve from the factor?