Question

Calculate Trade Receivables Turnover Ratio from the following data:

• Total Revenue from Operations: ₹4,00,000
• Closing Trade Receivables: ₹1,00,000
• Excess of Closing Trade Receivables over Opening: ₹40,000
• Cash Revenue = 25% of Credit Revenue

• A. 3 times
• B. 6 times
• C. 4 times
• D. 5 times

Hint:

Always convert total revenue into credit revenue when cash revenue is part of the mix. Then apply the ratio formula.

Answer 1

The Correct Option is C

Step 1: Isolate credit revenue.
Assume credit revenue is ₹ x. Consequently, cash revenue is 0.25x. Therefore, total revenue equals \(x + 0.25x = 1.25x\). Given total revenue is ₹4,00,000, we solve for x: \(1.25x = 4,00,000 \Rightarrow x = ₹3,20,000\). Step 2: Calculate average trade receivables.
Closing receivables are ₹1,00,000.
Opening receivables are ₹1,00,000 - ₹40,000 = ₹60,000.
\[\text{Average Trade Receivables} = \frac{1,00,000 + 60,000}{2} = ₹80,000\]Step 3: Apply the formula. \[\text{Trade Receivables Turnover Ratio} = \frac{\text{Credit Revenue}}{\text{Average Trade Receivables}} = \frac{3,20,000}{80,000} = 4 \text{ times}\]