Question

Closing Trade Receivables ₹ 4,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 2,00,000; Revenue from Operations, i.e., Net Sales ₹ 15,00,000. Calculate Trade Receivables Turnover Ratio.

[Hint: 1.  Net Credit Sales = Total Sales − Cash Sales
2.  Opening Trade Receivables = Closing Trade Receivables − Excess of Closing Trade Receivables over Opening Trade Receivables.]

Answer 1

Let Credit Sales be = `x`

Cash Sales = 25% of Credit Sales

Cash Sales = `x xx 25/100`

= `(25x)/100` 

Total Sales = Cash Sales + Credit Sales

`₹ 15,00,000 = (25x)/100 + x`

`(125x)/100 = ₹ 15,00,000`

`x = (₹ 15,00,000 xx 100)/125`

= ₹ 12,00,000

Credit sales `(x)` = ₹ 12,00,000

Opening Trade Receivables = Closing Trade Receivables − 2,00,000

= ₹ 4,00,000 − ₹ 2,00,000

= ₹ 2,00,000

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

= `(₹ 2,00,000  + ₹ 4,00,000)/2`

= `(₹ 6,00,000)/2`

= ₹ 3,00,000

Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`

= `(₹ 12,00,000)/(₹ 3,00,000)`

= 4 Times

Therefore, Trades Receivable Turnover Ratio is 4 Times.