Question

The credit revenue from operations of Velavan Ltd, amounted to ₹ 10,00,000. Its debtors and bills receivables at the end of the accounting period amounted to ₹ 1,10,000 and ₹ 1,40,000 respectively. Calculate trade receivables turnover ratio and also collection period in months.

Answer 1

Trade receivable Turnover ratio = `"Credit revenue from Operations"/"Average trade receivables"`

Average trade receivables = `("Opening trade receivables + Closing trade receivables")/2`

Trade receivable = Trade Debtors + Bills receivable

Inventory Turnovers Ratio = `1000000/250000` = 4 times

Average Trade receivable

= 1,10,000 + 1,40,000

= Rs. 2,50,000

Debt collection period = `"Number of months in a year"/"Trade receivable turnover ratio"`

`= 12/4` = 3 months