12th | Accounting Ratios | Question No. 86 To 90 | Ts Grewal Solution 2022-2023

Compute Trade Receivables Turnover Ratio from the following:

	31st March, 2020( `)	31st March, 2021( `)
Revenue from Operations (Net Sales)	8,00,000	7,00,000
Debtors in the beginning of year	83,000	1,17,000
Debtors at the end of year	1,17,000	83,000
Sales Return	1,00,000	50,000

Average Debtors =Opening Debtors + Closing Debtors/2

 

In 2017 = 83,000 + 1,17,000/2 =  ` 1,00,000      

 

In 2018 =  1,17,000 + 83,000/2 =  ` 1,00,000

Debtors Turnover Ratio = Net Sales/Average Debtors               

In 2020         = 8,00,000/1,00,000 = 8 Times              

 In 2021        = 7,00,000/1,00,000 = 7 Times

Closing Trade Receivables `1,20,000, Revenue from Operations `14,40,000. Provision for Doubtful Debts `20,000. Calculate Trade Receivables Turnover Ratio.

Closing Trade Receivables =  ` 1,20,000
Revenue from Operations =  ` 14,40,000
Since, opening trade receivables have not been given we assume closing trade receivables to be our average trade receivables. Also, the revenue from operations will be assumed to be revenue from net credit sales.
Trade Receivables Turnover Ratio = Credit Revenue from Operations/Average Credit receivables
                                               = 14,40,000/1,20,000 = 12 times
Therefore, this higher ratio indicates the rate at which the firm is able to collect its debt efficiently.

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.

Let Credit Sales be	= x
Cash Sales	=25% of Credit Sale
Cash Sales	=x×25/100 =25x/100
Total Sales	= Cash Sales + Credit Sales
15,00,000	=25x/100+x
Or, 125x/100	=15,00,000
Or, x	=15,00,000×100/125=12,00,000
Opening Trade Receivables	= Closing Trade Receivables − 2,00,000 = 4,00,000 − 2,00,000 = 2,00,000
Average receivables	= Opening Receivables +Closing Receivables/2
Average receivables	= 2,00,000+4,00,000/2=3,00,000
Trade Receivables Turnover Ratio	=Net Credit Sales/Average Trade Receivables  =12,00,000/3,00,000 =4

Therefore, Trades Receivable Turnover Ratio is 4 Times

A firm normally has trade Receivables equal to two months' credit Sales. During the coming year it expects Credit Sales of  ` 7,20,000 spread evenly over the year (12 months). What is the estimated amount of Trade Receivables at the end of the year?

Debt collection period	=12 Month/ Debtors turnover ratio
2	=12/ Debtors turnover ratio
Debtors turnover ratio=6
Debtors turnover ratio	= Credit sales / Debtors (Closing )
6	=7,20,000/ Debtors (Closing )
Debtors (Closing )	=1,20,000

Mercury Ltd. made Credit Sales of `4,00,000 during the financial period. If the collection period is 36 days and year is assumed to be 360 days, calculate:

(i) Trade Receivables Turnover Ratio;

(ii) Average Trade Receivables;

(iii) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ` 6,000.

 

(i) Trade Receivables Turnover Ratio;

 

Formula for calculating Trade Receivables Turnover Ratio

Trade Receivables Turnover Ratio = no. of year / collection period

Trade Receivables Turnover Ratio = 360 / 36 =10 Times 

(ii) Average Trade Receivables;

 

This formula is used for of calculating Trade Receivables Turnover Ratio = Credit revenue from operation / Average Trade Receivables

Trade Receivables Turnover Ratio= 4,00,000 / Average Trade Receivables = 10 Times

If Above formula is reversed, We can calculate Average Trade Receivables as follow;

Average Trade Receivables = 4,00,000/ 10 Times = 40,000

 

(iii) Trade Receivables at the end when Trade Receivables at the end are more than that in the beginning by ` 6,000.

 

∴ Closing Trade Receivables = x + 6,000

            Average receivables    = Opening Receivables +Closing Receivables/2

            40,000 = x+x+6,000/2

            Or,       80,000 = 2x+6,000

            Or,              2x = 74,000

            Or,                x = 37,000

∴ Opening Trade Receivables = x = `37,000

Closing Trade Receivables = x + 6,000 = 43,000

Closing Trade Receivables =37,000 + 6,000 = 43,000