Question

Calculate the amount of Opening Trade Receivables and Closing Trade Receivables from the following information:
Trade Receivables Turnover Ratio = 5 times
Cost of Revenue from Operations = ₹ 8,00,000
Gross Profit Ratio = 20%
Closing Trade Receivables were ₹ 40,000 more than Opening
Cash Sales = \( \frac{1}{4} \) of Credit Sales

Hint:

TRTR = Credit Sales / Avg. Trade Receivables; Average = (Opening + Closing) / 2.

Answer 1

Gross Profit equals 20% of Sales, implying COGS is 80% of Sales. Given COGS = ₹8,00,000, the Total Sales are calculated as ₹10,00,000.

Cash Sales constitute ¼ of Credit Sales. Let Credit Sales be x; then Cash Sales are x/4. Total Sales = x + x/4 = 5x/4. Setting 5x/4 = 10,00,000 yields x = ₹8,00,000. Therefore, Credit Sales = ₹8,00,000.

Average Trade Receivables are calculated by dividing Credit Sales by the Trade Receivables Turnover Ratio (TRTR). Average Trade Receivables = ₹8,00,000 / 5 = ₹1,60,000.

Let Opening Trade Receivables be x. Then Closing Trade Receivables are x + ₹40,000. The Average is (x + (x + 40,000)) / 2 = (2x + 40,000) / 2. Equating this to ₹1,60,000: (2x + 40,000) / 2 = ₹1,60,000. This simplifies to 2x + 40,000 = 3,20,000, leading to x = ₹1,60,000.

Opening Trade Receivables = ₹1,60,000, and Closing Trade Receivables = ₹2,00,000.

Final Answer: Opening = ₹1,60,000, Closing = ₹2,00,000