AAA is a traditional wholesaler. It sells goods to retailers and directly to the public. AAA offers trade credit to retailers. (b) Fig. 2 shows an invoice issued by AAA. AAA Any Place Anytown INVOICE Joe's Corner Store Anywhere | Quantity | Description | Cost | |:---------|:------------|:-------| | 20 cases | Sliced peaches @ $50 per case | $1000 | | | Less 20% trade discount | | Fig. 2 Use Fig. 2 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2016). The mark or mark type is shown in brackets.

1. [2] (a) (i) Valid points include (Any 2 × 1 marks): • Trade credit allows the purchaser to pay for them later (1) after an agreed period of time (1) for goods after they have received them (1) • The credit period will allow the buyer to sell the goods (1) and so pay for them from the proceeds of the sale (1) • The credit period given may vary/for a short period of time (1) and depend on the credit-worthiness of the customer (1) but usually used for trusted/reliable buyers (1) Accept any other relevant points.
2. [4] (a) (ii) 1 mark for each advantage and disadvantage stated with a further mark for a brief explanation. Maximum one advantage (2 marks) and one disadvantage (2 marks) Advantages • AAA's sales will increase (1) as customers can buy even if they have no money at present (1) • Customers will remain loyal to AAA (1) leading to repeat business (1) because of favourable credit terms (1) • Gives a competitive edge (1) over other wholesalers that do not offer trade credit (1) Disadvantages • AAA runs the risk of a loss if customer does not pay (1) amount becomes a bad debt (1) • AAA will have to investigate the credit worthiness of potential credit customer (1) extra time/fees to be paid (1) • AAA's cash flow will be reduced (1) as the money is not being immediately received (1) Accept any other relevant points.
3. [4] (a) (iii) Valid points include (Any 4 × 1 marks): • A statement of account shows the transactions/description of goods bought (1) during a period (usually one month) (1) for goods bought on credit (1) • AAA can identify how much the customer owes/total cost (1) and if the customer has been late with payments (1) and follow up if necessary (1) • The customer can check that all the invoices on the statement relate to goods bought by him (1) and that all payments he has made have been recorded by AAA (1) and any errors made (1) • The statement of account, therefore, acts as a check (1) and a reminder from AAA of payments due (1) and a demand/request for payment (1) • Serves as evidence/proof (1) in legal disputes (1) Accept any other relevant points.
4. [2] (b) (i) 1 mark for showing amount due and amount of discount. 1 mark for net due after discount 20 cases @ $50 per case = $1000 Less discount @ 20% = 200 (1) Net due $800 (1) or 2 marks for the correct answer
5. [2] (b) (ii) 1 mark for amount to be credited. 1 mark for correct new amount due Cost of four damaged cases before discount $200 Discount @ 20% $40 Net Credit $160 (1) Amount owed by Joe $800 minus $160 = $640 (1) or 2 marks for the correct answer
6. [6] (c) Level 2 (4–6 marks) Has discussed whether or not AAA should continue to operate as a traditional wholesaler or change to being a cash and carry warehouse and has given a reasoned opinion (If a candidate has presented a one-sided argument, award 4 marks max.) Level 1 (1-3 marks) Has made some comments on whether or not AAA should remain as a traditional wholesaler or change to being a cash and carry warehouse with/without an opinion • Traditional wholesaler delivers from his premises to retailer, gives credit to retailer. Retailer does not often, if ever, visit wholesaler's premises • Cash and carry wholesalers offer self-service wholesaling. Retailer visits wholesaler's premises and picks goods. Wholesaler does not deliver and does not give credit • By reducing services such as credit and delivery, wholesaler can cut prices, thus allowing the small retailer more chance of competing with larger stores • The wholesaler will have fewer expenses of staff and delivery and will have no risk of bad debts from giving credit • AAA must consider how many of its existing customers would still buy without delivery or credit • It could also pick up new customers as its prices would be less than traditional wholesalers • It will increase costs in refurbishing a cash and carry warehouse e.g. new shelving. Accept any other relevant points.