Question

Opening Trade Payables 1/3rd of Closing Trade Payables, Closing Trade Payables 12.5% of Net Credit Purchases, Net Credit Purchases ₹ 3,60,000. Trade Payables Turnover Ratio will be ______.

Options

• 10 Times

• 12 Times

• 8 Times

• 15 Times

Answer 1

Opening Trade Payables 1/3rd of Closing Trade Payables, Closing Trade Payables 12.5% of Net Credit Purchases, Net Credit Purchases ₹ 3,60,000. Trade Payables Turnover Ratio will be 12 Times.

Explanation:

\[\text{Closing Trade Payables} = ₹3,60,000 \times 12.5\% = {₹45,000}\]

$$\text{Opening Trade Payables} = ₹45,000 \times \frac{1}{3} = {₹15,000}$$

$$\text{Average Trade Payables} = \frac{\text{Opening Trade Payables} + \text{Closing Trade Payables}}{2}$$

$$\text{Average Trade Payables} = \frac{₹15,000 + ₹45,000}{2} = \frac{₹60,000}{2} = {₹30,000}$$

$$\text{Trade Payables Turnover Ratio} = \frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}$$

$$\text{Trade Payables Turnover Ratio} = \frac{₹3,60,000}{₹30,000} = {12\text{ Times}}$$