Question

Calculate opening and closing Trade Payables from the following information:

Total purchases ₹ 15,00,000.

Cash purchases are 25% of credit purchases.

Trade payables turnover ratio is 4 times.

Closing trade payables are two times of opening trade payables.

Answer 1

Let credit purchase be x.

Cash purchases are 25% of x = `25/100x`

= 0.25x

Total purchases = Cash purchases + Credit purchases

₹ 15,00,000 = 0.25x + x

15,00,000 = 1.25x

x = `(15,00,000)/1.25`

x = ₹ 12,00,000

∴ Credit purchases = ₹ 12,00,000

Trade payable turnover ratio = `"Net credit purchases"/"Average trade payables"`

4 = `(12,00,000)/"Average trade payables"`

Average trade payables = `(12,00,000)/4`

Average trade payables = ₹ 3,00,000

Let the opening trade payable be y.

Closing trade payable is 2y.

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

3,00,000 = `(y + 2y)/2`

6,00,000 = 3y

`(6,00,000)/3` = y

y = 2,00,000

(Opening trade payables) y = ₹ 2,00,000

Closing trade payables = 2 × 2,00,000

= ₹ 4,00,000