Question

A limited company made Credit Sales of ₹ 4,00,000 during the financial period. If the collection period is 36 days and the year is assumed to be 360 days, calculate:

1. Trade Receivables Turnover Ratio;
2. Average Trade Receivables;
3. Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ₹ 6,000.

Answer 1

i) Debt collection period = 36 days

Debt collection period = `(360  "days")/"Trade Receivables turnover ratio"`

36 = `(360  "days")/"Trade Receivables turnover ratio"`

Trade Receivables turnover ratio = `360/36`

Trade receivables turnover ratio = 10 times

ii) Debtors turnover ratio = `"Credit sales"/"Average trade receivable"`

`10 = 400000/"Average trade receivable"`

Average trade receivable = `400000/10`

Average trade receivable = 40000

iii) Let opening trade receivable be x.

Closing trade receivable = x + 6000

Average trade receivable = `("Opening receivable" + "Closing receivable")/2`

`40000 = (x + x + 6000)/2`

80000 = 2x + 6000

`(80000 - 6000)/2` = x 

x = 37000

Opening trade receivable = x = 37000

Closing trade receivable = x + 6000 = 37000 + 6000 = 43000