Question

Cash Revenue from Operations (Cash Sales) ₹ 2,00,000, Cost of Revenue from Operations or Cost of Goods Solds ₹ 3,50,000; Gross Profit ₹ 1,50,000; Trade Receivables Turnover Ratio 3 Times. Calculate Opening and Closing Trade Receivables in each of the following alternative cases:
Case 1: If Closing Trade Receivables were ₹ 1,00,000 in excess of Opening Trade Receivalbes.
Case 2: If trade Receivables at the end were 3 times than in the beginning.
Case 3: If trade Receivables at the end were 3 times more than that of in the beginning.

Answer 1

Total sales = Cost of goods sold + Gross profit

= 350000 + 150000

= ₹ 500000

Credit sales = Total sales − Cash sales

= 500000 − 200000

= ₹ 300000

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

`3 = 300000/"Average Trade Receivables"`

Average Trade Receivables = `300000/3`

= 100000

Case 1: 

Let opening trade receivable be x.

∴ Closing trade receivable = x + 100000

Average trade receivable = `("opening trade receivable" + "Closing trade receivable")/2`

∴ `100000 = (x + x + 100000)/2`

∴ `100000 xx 2 = 2x + 100000`

∴ `200000 = 2x + 100000`

∴ `200000 - 100000 = 2x`

∴ `2x = 100000`

∴ `x = 100000/2`

∴ x = 50000

Opening trade receivable = ₹ 50,000

Closing trade receivable =  x + 100000

= 50000 + 100000

= ₹ 1,50,000

Case 2: 

Let opening trade receivable be x.

Closing trade receivable be 3x

`100000 = (x + 3x)/2`

∴ 100000 × 2 = x + 3x

∴ 200000 = 4x

∴ `200000/4 = x`

∴ x = 50000

Opening trade receivable = ₹ 50,000

Closing trade receivable = 3x

∴ = 3 × 50000

= ₹ 1,50,000

Case 3: 

Let opening trade receivable be x.

Closing trade receivable be x + 3x

`100000 = (x + 4x)/2`

∴ 100000 × 2 = x + 4x

∴ 200000 = 5x

∴ `200000/5 = x`

∴ x = 40000

Opening trade receivable = ₹ 40,000

Closing trade receivable = 4x

= 4 × 40000

= ₹ 1,60,000