Reference no: EM133920471

Problem

It is anticipated that bad debts will be 2% of the total turnover for a credit term of one month, 3% for a credit term of two months and 6% for a credit term of three months. The rest of the customers will adhere to the credit terms. A cash discount of 5% is offered to customers making their payments within 15 days. Roughly 20% of customers use the discount for early payment. All other customers use normal credit terms. Discount allowed and received are classified as operating expenses and income respectively. The company marks up its goods by two-thirds of cost. The company negotiates and sticks to a credit term of 60 days with all its suppliers. You can assume there is 365 days in a year. The cash operating and administration costs are estimated at R130 000 per year. The balances of the working capital accounts for the current year are as follows: o Bank account: R200 000 (opening credit balance) o Trade receivables: R230 000 (closing balance) o Trade payables: R270 000 (closing balance), The company currently pays interest on the bank overdraft balance of 8,25% per year. This rate also approximates the company's weighted average cost of capital. The company earns an average of 3,5% per annum based on the closing bank balance, if favourable. Get the instant assignment help. Calculate the average debtors' time-lag for the current year.