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.