Question

Calculate Trade Payables Turnover Ratio for the year 2018-19 in each of the alternative cases:
Case 1 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000; Purchases Return ₹ 60,000; Cash Purchases ₹ 90,000.
Case 2 : Opening Trade Payables ₹ 15,000; Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000. 
Case 3 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 4 : Closing Trade Payables (including ₹ 25,000 due to a supplier of machinery) ₹ 55,000; Net Credit Purchases ₹ 3,60,000.

Answer 1

Case 1

Net Credit Purchases = Net Purchases − Cash Purchases

= 3,60,000 − 90,000 = 2,70,000

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

${\displaystyle =\frac{270000}{45000}}$ = 6 times

Case 2

Net Purchases = 3,60,000

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

${\displaystyle =\frac{15000+45000}{2}=30000}$

Trade Payables Turnover Ratio = ${\displaystyle \frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}=\frac{360000}{30000}}$ = 12 times

Case 3 
Trade Payable Turnover Ratio = 
${\displaystyle \frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}=\frac{360000}{45000}=8 \text{times}}$

Case 4 

Net Credit Payables for Goods = Trade Payables − Creditors for Machinery

= 55,000 − 25,000 = 30,000

Trade Payable Turnover Ratio = ${\displaystyle \frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}=\frac{360000}{30000}}$ = 12 times