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Question
From the following information, calculate Opening and Closing Trade Receivables, if Trade Receivables Turnover Ratio is 3 Times:
(i) Cash Revenue from Operations is 1/3rd of Credit Revenue from Operations.
(ii) Cost of Revenue from Operations is ₹3,00,000.
(iii) Gross Profit is 25% of the Revenue from Operations.
(iv) Trade Receivables at the end are 3 Times more than that of in the beginning.
Solution
Trade Receivable Turnover Ratio =`"Credit Revenue from Operations"/"Average Trade Receivables"`
`3 = 300000/"Average Trade Receivables"`
`"Average Trade Receivables" = 300000/3 = 100000`
`"Average Trade Receivables" =("Opening Trade Receivables + Closing Trade Receivables")/2 `
`100000 = (x + 4x)/2`
So, x would be Rs 40000
∴Opening receivables would be Rs 40,000 and,
Closing Receivables would be Rs 1,60,000 (40,000 × 4)
Revenue from Operations= `300000 + 25/75 xx 300000` = Rs 400000
Credit Revenue from Operations=Total Revenue from Operations−Cash Revenue from Operations
`x = 400000 - 1/3 x`
Credit Revenue from Operations=Rs 3,00,000
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