Using the information given, assess whether Rowett should accept the factoring service offeredby Powell. What use should the company make of any finance provided by the factor The following has been extracted from the financial statements of Rowett:Statement of profit or loss extracts£000£000Revenue12,000Cost of sales:8,8603,1401,6801,460£000Raw materials5,800Labour3,060Gross profitAdministration/distributionProfit before interest and taxFinancial position statement extracts£000Current assets:Inventory of raw materials1,634Inventories of finished goods2,018Trade receivables1,538Cash and bank5005,690Current liabilities:Trade payables1,092Overdraft300Other expenses761,468Powell, a factoring company, has offered to take over Rowett's debt administration and credit controlon a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett £160,000 peryear in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell wouldreduce trade receivables days to 40 days and would advance 75 per cent of invoiced debts at aninterest rate of 10 per cent.Rowett finances working capital from an overdraft at 8 per cent.

Answered: Image /qna-images/answer/f1b39c3e-9265-4c54-8b48-dbce6f7c05bf.jpg

The following has been extracted from the financial statements of Rowett: Statement of profit or loss extracts £000 £000 Revenue 12,000 Cost of sales: Raw materials Labour 8,860 Gross profit 3,140 Administration/distribution 1,680 Profit before interest and tax 1,460 £000 Current assets: Inventory of raw materials Inventories of finished goods Trade receivables Cash and bank 5,690 Current liabilities: Trade payables Overdraft Other expenses 76 1,468 Powell, a factoring company, has offered to take over Rowett's debt administration and credit control on a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett £160,000 per year in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell would reduce trade receivables days to 40 days and would advance 75 per cent of invoiced debts at an interest rate of 10 per cent. Rowett finances working capital from an overdraft at 8 per cent. 5,800 3,060 Financial position statement extracts £000 1,634 2,018 1,538 500 1,092 300

The following has been extracted from the financial statements of Rowett: Statement of profit or loss extracts £000 £000 Revenue 12,000 Cost of sales: Raw materials Labour 8,860 Gross profit 3,140 Administration/distribution 1,680 Profit before interest and tax 1,460 £000 Current assets: Inventory of raw materials Inventories of finished goods Trade receivables Cash and bank 5,690 Current liabilities: Trade payables Overdraft Other expenses 76 1,468 Powell, a factoring company, has offered to take over Rowett's debt administration and credit control on a non-recourse basis for an annual fee of 2 per cent of sales. This would save Rowett £160,000 per year in administration costs and reduce bad debts from 0.5 per cent of sales to nil. Powell would reduce trade receivables days to 40 days and would advance 75 per cent of invoiced debts at an interest rate of 10 per cent. Rowett finances working capital from an overdraft at 8 per cent. 5,800 3,060 Financial position statement extracts £000 1,634 2,018 1,538 500 1,092 300

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter5: Accounting For Retail Businesses

Section: Chapter Questions

Problem 5MAD: Analyze Home Depot The Home Depot (HD) reported the following data (in millions) in its recent...

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