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Question
Calculate Trade Receivables Turnover Ratio in each of the following alternative cases:
Case 1: Net Credit Sales ₹4,00,000; Average Trade Receivables ₹1,00,000.
Case 2: Revenue from Operations (Net Sales) ₹30,00,000; Cash Revenue from Operations, i.e., Cash Sales ₹6,00,000; Opening Trade Receivables ₹2,00,000; Closing Trade Receivables ₹6,00,000.
Case 3: Cost of Revenue from Operations or Cost of Goods Sold ₹3,00,000; Gross Profit on Cost 25%; Cash Sales 20% of Total Sales; Opening Trade Receivables ₹50,000; Closing Trade Receivables ₹1,00,000.
Case 4: Cost of Revenue from Operations or Cost of Goods Sold ₹4,50,000; Gross Profit on Sales 20%; Cash Sales 25% of Net Credit Sales, Opening Trade Receivables ₹90,000; Closing Trade Receivables ₹60,000.
Solution
Case 1
Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`
Trade Receivable Turnover Ratio = `400000/100000` = 4 times
Case 2
Net Credit Sales = Total Sales −Cash Sales
= 30,00,000 − 6,00,000 = 24,00,000
Average Trade Receivable = `("Opening Trade Receivable + Closing Trade Receivable ")/2`
Average Trade Receivable = `(200000 + 600000)/2 = 400000`
Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`
Trade Receivable Turnover Ratio = `2400000/400000` = 6 times
Case 3
Cost of Goods Sold = 3,00,000
Gross Profit = 25% on Cost
∴ Gross Profit =`25/100 xx 300000 = 75000`
Total Sales = Cost of Goods Sold + Gross Profit
= 3,00,000 + 75,000 = 3,75,000
Cash Sales = 20% of Total Sales
∴ Cash Sales = `375000 xx 20/100 = 75000`
Credit Sales = Total Sales − Cash Sales
= 3,75,000 − 75,000 = 3,00,000
Average Trade Receivable = `("Opening Trade Receivable + Closing Trade Receivable ")/2`
Average Trade Receivable = `(50000 + 100000)/2 = 75000`
Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`
Trade Receivable Turnover Ratio = `300000/75000` = 4 times
Case 4
Let Sales be = x
Gross Profit = `x xx 20/100 = (20x)/100`
Sales = Cost of Goods Sold + Gross Profit
or, `x = 450000 + (20x)/100`
or, `x - 20/100 = 450000`
or,`x = (450000 xx 100)/80` = 562500
Sales = x = Rs 562500
Let Credit Sales be = a
Cash Sales = `a xx 25/100 = (25a)/100`
Sales = Cash Sales + Credit sales
or, `562500 = (25a)/100 + a`
or, `562500 = (125a)/100`
or,`a = (562500 xx 100)/125 = 450000`
Credit Sales = a = 450000
Average Trade Receivable = `("Opening Trade Receivable + Closing Trade Receivable ")/2`
Average Trade Receivable = `(90000 + 60000)/2 = 75000`
Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`
Trade Receivable Turnover Ratio = `450000/75000` = 6 times
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|
|
Rs |
|
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15,00,000 |
|
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|
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| ₹ | ₹ | |||
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| ₹ | |
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