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Question
Cash Revenue from Operations (Cash Sales) ₹ 2,00,000, Cost of Revenue from Operations or Cost of Goods Solds ₹ 3,50,000; Gross Profit ₹ 1,50,000; Trade Receivables Turnover Ratio 3 Times. Calculate Opening and Closing Trade Receivables in each of the following alternative cases:
Case 1: If Closing Trade Receivables were ₹ 1,00,000 in excess of Opening Trade Receivalbes.
Case 2: If trade Receivables at the end were 3 times than in the beginning.
Case 3: If trade Receivables at the end were 3 times more than that of in the beginning.
Solution
Total sales = Cost of goods sold + Gross profit
= 350000 + 150000
= ₹ 500000
Credit sales = Total sales − Cash sales
= 500000 − 200000
= ₹ 300000
Trade Receivables Turnover Ratio = `"Credit sale"/"Average Trade Receivables"`
`3 = 300000/"Average Trade Receivables"`
Average Trade Receivables = `300000/3`
= 100000
Case 1:
Let opening trade receivable be x.
∴ Closing trade receivable = x + 100000
Average trade receivable = `("opening trade receivable" + "Closing trade receivable")/2`
∴ `100000 = (x + x + 100000)/2`
∴ `100000 xx 2 = 2x + 100000`
∴ `200000 = 2x + 100000`
∴ `200000 - 100000 = 2x`
∴ `2x = 100000`
∴ `x = 100000/2`
∴ x = 50000
Opening trade receivable = ₹ 50,000
Closing trade receivable = x + 100000
= 50000 + 100000
= ₹ 1,50,000
Case 2:
Let opening trade receivable be x.
Closing trade receivable be 3x
`100000 = (x + 3x)/2`
∴ 100000 × 2 = x + 3x
∴ 200000 = 4x
∴ `200000/4 = x`
∴ x = 50000
Opening trade receivable = ₹ 50,000
Closing trade receivable = 3x
∴ = 3 × 50000
= ₹ 1,50,000
Case 3:
Let opening trade receivable be x.
Closing trade receivable be x + 3x
`100000 = (x + 4x)/2`
∴ 100000 × 2 = x + 4x
∴ 200000 = 5x
∴ `200000/5 = x`
∴ x = 40000
Opening trade receivable = ₹ 40,000
Closing trade receivable = 4x
= 4 × 40000
= ₹ 1,60,000
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