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Question
Closing Trade Receivables ₹ 4,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 2,00,000; Revenue from Operations, i.e., Revenue from Operations, i.e., Net Sales ₹ 15,00,000. Calculate Trade Receivables Turnover Ratio
[Hint: 1. Net Credit Sales = Total Sales − Cash Sales
2. Opening Trade Receivables = Closing Trade Receivables − Excess of Closing Trade Receivables over Opening Trade Receivables.]
Solution
Let Credit Sales be = x
Cash Sales = 25% of Credit Sales
Cash Sales = `x xx 25/100 = (25x)/100`
Total Sales = Cash Sales + Credit Sales
`1500000 = (25x)/100 + x`
or, `(125x)/100 = 1500000`
or, `x = (1500000 xx 100)/125 = 1200000`
Credit sales = x = Rs 1200000
Opening Trade Receivables = Closing Trade Receivables − 2,00,000
= 4,00,000 − 2,00,000 = 2,00,000
Average Trade Receivables= `("Opening Trade Receivables + Closing Trade Receivables")/2`
`= (200000 + 400000)/2 = 300000`
Trade Receivable Turnover Ratio = `"Net Credit Sales"/"Average Trade Receivables"`
`= 1200000/300000` = 4
Therefore, Trades Receivable Turnover Ratio is 4 Times
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