Question 114 (Calculation of Opening and Closing Trade Payables)

114 :- From the following information, calculate Opening and Closing Trade Payables:
Cash Purchases 25% of Total Purchases; Revenue from Operations Rs 3,00,000; Gross Profit 25% on Revenue from Operations; Opening Inventory Rs 75,000; Closing Inventory Rs 1,50,000; Trade Payables Turnover Ratio 3 Times; Closing Trade Payables were Rs 75,000 in excess of Opening Trade Payables.

Solution :-

Gross Profit = Revenue from Operations – Cost of Revenue from Operations
25% of 3,00,000 = 3,00,000 – Cost of Revenue from Operations
Cost of Revenue from Operations = 3,00,000 – 75,000
= Rs 2,25,000

Cost of Revenue from Operations = Opening Inventory + Total Purchases – Closing Inventory
2,25,000 = 75,000 + Total Purchases – 1,50,000
Total Purchases = Rs 3,00,000

Net Credit Purchases = Total Purchase – Cash Purchases
= 3,00,000 – 75,000
= Rs 2,25,000

Opening Trade Payables = x
Closing Trade Payables = x + 75,000

Trade Payable Turnover Ratio = Net Credit Purchase/Average Trade Payables
3 = 2,25,000/[(x + x + 75,000)/2]
3 = 4,50,000/2x + 75,000
6x + 2,25,000 = 4,50,000
6x = 2,25,000
Opening Trade Payables (x) = Rs 37,500
Closing Trade Payables = 37,500 + 75,000
= Rs 1,12,500