Sample 1 - Task 4

I know this post was a while ago, but I thought I would comment to explain for anybody else:

Period 5:
Option 1 - 10% discount
So the 42,000 x £10 x 0.90 =378,000 (All paid in Period 5)
Period 4: As the new discount starts from Period 4 onwards this is all paid in Period 4
The remaining balance of 40% from Period 3 paid in Period 5 = 164,000
164,000 + 378,000 = 542,000

Option 2: 5% discount 50% paid in month of purchase
Period 5 payments

Period 3 - still original timing of receipts = 40% 164,000 balance paid Period 5
Period 4 - 50% at discounted paid in Period 5 (40,000 x £10 x 0.95) = 380,000
50% Period 4 paid in Period 5 = 190,000
Period 5 sales = 42,000 x £10 x 0.95 = 399,000
50% paid in period 5 = 199,500
Period 5 total payments = 164,000 + 190,000 + 199,500 = 553,500

Hope I have explained this okay!

g_anastasija said:

Could you please explain more detailed?

Step by step.

• Period 4 onwards, McCaw Ltd has decided to change the payment terms.
  
• Now the question requires you to work out how much would Conrad Ltd pay McCaw Ltd during the period 5 based on the forecast units?
  
• You have to note that the payment terms hasn’t changed for period 3, which means the payment to be made for that period is still under old payment terms.
  
• The old payment terms is that the company pays 20%, 40% and another 40% split between three periods.
  
• Option 1: (10% discount) Period 5 will have 100% of period 5 + period 3’s balance 40% (Guess why period 4 is not here?)
  
• Option 2: (5% discount) Period 5’s 50% + Period 4’s 50% + Period 3’s balance 40%.