Question

Calculate Trade Payables Turnover Ratio for the year 2022-23 in each of the alternative cases:
Case 1: Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000; Purchases Return ₹ 60,000; Cash Purchases ₹ 90,000.
Case 2: Opening Trade Payables ₹ 15,000; Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000. 
Case 3: Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 4: Closing Trade Payables (including ₹ 25,000 due to a supplier of machinery) ₹ 55,000; Net Credit Purchases ₹ 3,60,000.

Hint: Case 4: A creditor for machinery has been excluded since he does not arise from the purchase of goods in which the firm deals in.

Answer 1

Case 1

Net Credit Purchases = Net Purchases − Cash Purchases

= 3,60,000 − 90,000 = 2,70,000

Trade Payables Turnover Ratio = `"Net Credit Purchases"/"Closing Trade Payables"`

`= 270000/45000` = 6 times

Case 2

Net Purchases = 3,60,000

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

`= (15000 + 45000)/2 = 30000`

Trade Payables Turnover Ratio = `"Net Credit Purchases"/"Average Trade Payables" = 360000/30000` = 12 times

Case 3 
Trade Payable Turnover Ratio = 
`"Net Credit Purchases"/"Average Trade Payables" = 360000/45000 = 8  "times"`

Case 4 

Net Credit Payables for Goods = Trade Payables − Creditors for Machinery

= 55,000 − 25,000 = 30,000

Trade Payable Turnover Ratio = `"Net Credit Purchases"/"Average Trade Payables" = 360000/30000` = 12 times