07 Identify and explain two reasons why Dhoni has trade receivables. [4]

[BASEL Moderator]

Dhoni is a successful small business. It has five shops which sell kitchen equipment such as cooking pots and knives. Most of its products are sold to restaurants and hotels. The company has received a takeover offer of $700 000 from a large competitor. Dhoni’s shareholders have been looking at the accounts. They are not sure whether shareholders would benefit from the takeover. Dhoni’s return on capital employed was 7% in 2015 and 9% in 2016.

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07 Identify and explain two reasons why Dhoni has trade receivables. [4]

Possible KN Points:
• Marketing strategy
• Customers expect credit/time to pay
• Customers may have cash flow problems