Question

The following information has been obtained from the books of Naval Ltd. Trade receivables turnover ratio of the company is 4 times, cost of revenue from operations ₹ 6,40,000; gross profit ratio 20%, closing trade receivables were ₹ 20,000 more than that in the beginning. Cash revenue from operations being `33 1/3%` of credit revenue from operations. Calculate its opening and closing trade receivables.

Answer 1

Calculation of Revenue from Operations (Net Sales):

Gross Profit ratio is 20%, which means Cost is 80% (100 - 20) of sales.

Revenue from Operations = `"Cost"/80 xx 100`

= `(6,40,000)/80 xx 100`

= ₹ 8,00,000

Calculation of Credit Revenue from Operations (Credit Sales):

Cash Sales are `33 1/3%` (which is `1/3`) of Credit Sales.

Let Credit Sales be ‘x’. Then Cash Sales = `x/3`.

Total Sales = Cash Sales + Credit Sales

`x + x/3` = 8,00,000

`(4x)/3` = 8,00,000

⇒ x = `(8,00,000 xx 3)/4`

= ₹ 6,00,000

Calculation of Average Trade Receivables:

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

4 = `(6,00,000)/"Average Trade Receivables"`

Average Trade Receivables = `(6,00,000)/4`

= ₹ 1,50,000

Calculation of Opening and Closing Trade Receivables:

Let Opening be ‘y’ Then Closing = y + 20,000

Average = `"Opening + Closing"/2`

1,50,000 = `(y + (y + 20,000))/2`

1,50,000 × 2 = 2y + 20,000

3,00,000 = 2y + 20,000

3,00,000 − 20,000 = 2y

2,80,000 = 2y

y = `(2,80,000)/2`

y = 1,40,000 (Opening)

Closing = y + 20,000

= 1,40,000 + 20,000

= 1,60,000