104 :- Mercury Ltd. Made credit Sales of Rs 4,00,000 during the financial period. If the collection period is 36 days and year is assumed to be 360 days, calculate:
(a) Trade Receivables Turnover Ratio;
(b) Average Trade Receivables;
(c) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by Rs 6,000.
Solution :-
(a) Debt Collection Period = Number of Days/Trade Receivable Turnover Ratio
36 = 360/Trade Receivable Turnover Ratio
Trade Receivable Turnover Ratio = 10 Times
(b) Trade Receivable Ratio = Net Credit Sales/Average Trade Receivables
10 = 4,00,000/Average Trade Receivables
Average Trade Receivables = Rs 40,000
(c) Let the Opening Trade Receivable Turnover Ratio be x.
Closing Trade Receivables = x + 6,000
Average Trade Receivables = Opening Trade Receivables + Closing Trade Receivables/2
40,000 = x + (x + 6,000)/2
40,000 x 2 = 2x + 6,000
74,000 = 2x
x = 37,000
Opening Inventory = Rs 37,000
Closing Inventory = 37,000 + 6,000
= Rs 43,000