Calculate the cost of implementing the trade credit scheme

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Reference no: EM131993853

Statement of Profit and Loss for the year ended 31 Dec 2013

	$'000
Revenue	12,790
Cost of sales	(3,438)
Gross profit	9,352
Operating expenses	(1,456)
Profit before income tax	7,896
Income tax expense	(1,357)
Profit of the year	6,539

Revenue is all on credit terms and beginning invenories from cost of sales is $702,000

Statement of FInancial Position as at 31 Dec 2013

	$'000
Current assets
Cash and bank balances	3,534
Trade receivables	3,266
Inventories	843
Total	7,643

Non-current assets
Plant and equipment	3,214
TOTAL ASSETS	10,857

Current liabilities
Trade payables	651
Income tax payable	1,349
total	2,000

Capital and reserves
SHare capital	6,000
Retained earnings	2,857
total	8,857

total liabilities	10,857

Jane, the finance director of Kiwi Co. is looking to improve the firm's working capital management. she is thinking of extending an early settlement discount of either 2/15, net 90 or 1/10 net 60 for all customers.

Regardless of which proposal is implemented, the level of trade receivables is expected to reduce by the same amount.

(a) Calculate the cash conversion cycle of FY2013

(b) Calculate the cost of implementing the trade credit scheme (in %). analyse which credit terms shuld Kiwi zco. extend to its customers.

Reference no: EM131993853

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