Age of Debtors

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:26AM in AAT student discussion
Can anyone help me, am trying to do a question from Dec 2001 where the debtors figure is £35,040 and sales turnover is £560,640.
I calculate this to be an avg age of debtors at 0.75 months. Company policy states that avg age of debtors should be changed to 0.5 months.
How to I show an operating statement taking this change into account.
Thanks.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    Logically, the way to reduce the average age of debtors is to get more of them to pay sooner. More usefully, you need to reduce the Debtors figure: if it were reduced by a third to £23,360 then the average age of debtors would be 0.5 months.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    Thank you for answering.....
    I dont think I can just reduce the debtors figure in the statement though can I?

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    If you divide your sales by 12 months an then times by the months you want, you get your answer:

    £560640/12 x 0.5 = £23360

    Hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    I doubt that you can just change the figures. It depends on the question: are you being asked how the company could get its average debtor days down to 0.5 months? Sounds like a credit control memo question.

    Which paper is it for?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    I will check the question later and try and post it on here, many thanks for trying to help me!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    Operating statement for y/e 30 nov 2001
    Turnover......................560,640
    V/Cost........................175,200

    Contribution .................385,440

    Fixed costs
    Labour...........133,865
    Heat & Light......89,045
    Rates,Ins,Maint..120,482
    ..............................=343,392

    Net Profit..........................42,048

    Net Assets at 30 Nov 2001

    Fixed Assets.........................669,556
    Net Current Assets
    Debtors.............35,040
    Cash................10,804
    ........................=45,844
    Creditors..........(14,600)....=31,244
    Net Assets.........................700,800
    Company Policies to be:
    Avg age of debtors to be 0.5months
    The company should take twice as many months to pay creditors as it currently does

    Question: Prepare a revised operating statement and statement of net assets assuming these policies have been met.

    Oh bum, I just cannot get these figures in a sensible order for you all, i am so sorry, just ignore as it doesn't make easy reading!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    The day will no doubt come when the exam question says
      what effect would changing the debtors collection period to 0.5 months?
    and then followed it with
      how could this be achieved?

    But do treat them as separate questions. The sequence to find the debtors value if the benchmark was achieved has been described very clearly by lizmcginn. And at this stage that is all it is. There may be reasons why this is not achievable perhaps because of contractual terms with key customers, but if it could be ahieved then the cash would be coming in more quickly and the debtors would fall to this amount.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    Thank you all very much for your help, I was getting in a right old mess trying to work this one out.

    Seems so simple when you look at it now. :roll:

    Oh well, back to the books I guess!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Age of Debtors

    If like me you are reading this and wondering what the Dec 2001 scenario was, let me remind you. Helene de la Tour had set up the first UK hotel for a French company. It was charging £40 per night, so it was probably competing in the same market as Travelodges but with a higher standard rate per night. Although it was a first venture in the UK, I felt the plan was to open more here if it worked out. The company was already successful in France.

    I wouldn't have written so much if I thought it was irrelevant. All the students I have taught should be reading the introduction to the task next week and putting their pens down as they get a picture such as this of the business.

    Given the difficulty in pursuading loyal British Travelodge users to switch to a French owned hotel what might tempt some across?..........

    Could a longer credit period be something that might tempt your firm to tell their reps or service engineers to stay at one hotel rather than another?

    There is time now before the exam, so ask someone at work who decides where staff can and cannot stay and listen to his or her reply.

    I think their response (whether or not the credit period has any influence on the choice of hotel) doesn't matter, but I bet you remember the issue. And if that happens, you might be able to apply that knowledge in the exam.

Categories

Privacy Policy