Question

Credit Purchases ₹ 6,00,000; Trade Payables Turnover Ratio 5; Calculate Closing Creditors, if Closing Creditors are ₹ 10,000 less than Opening Creditors.

Options

• ₹ 1,15,000

• ₹ 1,25,000

• ₹ 1,30,000

• ₹ 1,10,000

Answer 1

₹ 1,15,000

Explanation:

Trade Payables Turnover Ratio = `"Credit Purchases"/"Average Trade Payables"`

5 = `(6,00,000)/"Average Trade Payables"`

Average Trade Payables = `(6,00,000)/5`

= ₹ 1,20,000

Let the Opening Creditors be x.

Closing Creditors = `x - 10,000`

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

1,20,000 = `(x + x - 10,000)/2`

1,20,000 × 2 = `2x - 10,000`

2,40,000 = `2x - 10,000`

2,40,000 + 10,000 = `2x`

2,50,000 = `2x`

`2x` = 2,50,000

`x` = `(2,50,000)/2`

Opening Creditors `(x)` = ₹ 1,25,000

Closing Creditors = Opening Creditors − 10,000

= 1,25,000 − 10,000

= ₹ 1,15,000