Orbelle, a hardware wholesaler, buys 400 units drills. For cash or at 30 days, the supplier's normal credit terms, each drill costs 75. Orbelle chooses an offer of a single payment of 33,600 in 18 months, which effectively contains a financing element. Compute the cost of the drills to be recognised in inventory and the financing element to be recognised as interest expense over the period of the financing.
- Number of drills
- 400
- Unit price for normal credit terms
- 75
- Total amount payable on deferred terms
- 33,600
- Deferral period
- 18