Question

Calculate the amount of opening trade receivables and closing trade receivables from the following information:
Trade receivables turnover ratio 8 times
Cost of revenue from operations ₹ 4,80,000
The amount of credit revenue from operations is ₹ 2,00,000 more than cash revenue from operations. Gross profit ratio is 20%. Opening trade receivables are 1/4^th of Closing trade receivables.

Answer 1

Trade Receivables Turnover Ratio	=	Net Credit Sales/Average Receivables
Cost of Revenue from Operations	=	₹ 4,80,000
Let Net Sales be	=	x
Gross Profit ratio	=	Gross Profit/Net Sales × 100
20/100	=	x − 4,80,000/x
20x/100	=	x – 4,80,000
x	=	6,00,000
Net Sales of the firm is	=	₹6,00,000
Let the cash revenue from operations	=	y
Credit revenue from operations	=	y + 2,00,000
Total Sales of the firm	=	Cash Sales + credit sales
6,00,000	=	(y + y + 2,00,000)
y	=	2,00,000
Cash Sales of the firm	=	₹2,00,000
Net Credit Sales	=	₹(2,00,000 + 2,00,000) = ₹4,00,000
Average Receivables	=	₹(4,00,000/8)
	=	₹50,000
Let closing trade receivables be	=	z
Opening trade receivables	=	z/4
Average trade Receivable	=	(Opening Trade Receivables + Closing trade Receivables)/2
50,000	=	(z + z/4)/2
z	=	80,000

Therefore, Opening Trade Receivables and Closing Trade Receivables of the firm are ₹20,000 and ₹80,000 respectively.