Question

Opening Trade Receivables ₹ 10,000; Total Revenue from Operations (Total Sales) ₹ 4,00,000; Cash Revenue from Operations being `2/5`th of Total Revenue from Operations; Revenue from Operations Return (Sales Returns) ₹ 60,000 (`1/3`rd out of Cash Revenue from Operations); Closing Trade Receivables were four times than that in the beginning. Calculate Trade Receivables Turnover Ratio.

Answer 1

Total Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations

₹ 4,00,000 = `2/5 xx ₹ 4,00,000` + Credit Revenue from Operations

Credit Revenue from Operations = ₹ 4,00,000 − ₹ 1,60,000

= ₹ 2,40,000

Net Credit Revenue from Operations = Credit Revenue from Operations − Revenue from Operations Return

= ₹ 2,40,000 − `₹ 60,000 xx 2/3`

= ₹ 2,40,000 − ₹ 40,000

= ₹ 2,00,000

Closing Trade Receivables = ₹ 10,000 × 4

= ₹ 40,000

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

= `(₹ 10,000  + ₹ 40,000)/2`

= `(₹ 50,000)/2`

= ₹ 25,000

Trade Receivables Turnover Ratio = `"Net Credit Revenue from Operations"/"Average Trade Receivables"`

= `(₹ 2,00,000)/(₹ 25,000)`

= 8 Times