Question

Calculate amount of Opening Trade Receivables and Closing Trade Receivables from the following figures:

Trade Receivable Turnover ratio	5 Times
Cost of Revenue from Operations	₹ 8,00,000
Gross Profit Ratio	20%

Closing Trade Receivables were ₹ 40,000 more than in the beginning. Cash sales being `1/4` times of Credit Sales.

Answer 1

Let the Revenue from Operations be x.

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

`20/100 x = x − ₹ 8,00,000`

`x − 20/100 x` = ₹ 8,00,000

`80/100 x` = ₹ 8,00,000

`x = (₹ 8,00,000 xx 100)/80`

Revenue from Operations `(x)` = ₹ 10,00,000

Let the Credit Revenue from Operations be x.

Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations

₹ 10,00,000 = `1/4 x + x`

`(5)/4 x` = ₹ 10,00,000

`x = (₹ 10,00,000 xx 4)/5`

Credit Revenue from Operations `(x)` = ₹ 8,00,000

Trade Receivables Turnover Ratio = `"Credit Revenue from Operations"/"Average Trade Receivables"`

5 = `(₹ 8,00,000)/("Average Trade Receivables")`

Average Trade Receivables = `(₹ 8,00,000)/5`

= ₹ 1,60,000

Average Trade Receivables = `("Opening Trade Receivables" + "Closing Trade Receivables")/2`

Let the Opening Trade Receivables be x.

Closing Trade Receivables = `x` + ₹ 40,000

₹ 1,60,000 = `(x + x + ₹ 40,000)/2`

₹ 1,60,000 = `(2x + 40,000)/2`

`2x` + ₹ 40,000 = ₹ 1,60,000 × 2

`2x` + ₹ 40,000 = ₹ 3,20,000

`x` = `(₹ 3,20,000  - ₹ 40,000)/2`

Opening Trade Receivables `(x)` = ₹ 1,40,000

Closing Trade Receivables = ₹ 1,40,000 + ₹ 40,000

= ₹ 1,80,000