Question

From the following information, calculate Opening Trade Receivables and Closing Trade Receivables : 
Trade Receivables Turnover Ratio - 4 times 
Closing Trade Receivables were Rs 20,000 more than that in the beginning. 
Cost of Revenue from operations - Rs 6,40,000. 
Cash Revenue from operations \( \frac{1}{3} \)rd of Credit Revenue from operations 
Gross Profit Ratio - 20% 

Hint:

Steps for TRTR problems: 1. Find Credit Revenue (Sales): Total Sales = COGS / (1 - GPR). Credit Sales = Total Sales - Cash Sales (or use given relationship). 2. Find Average Trade Receivables = Credit Revenue / TRTR. 3. Use the relationship between Opening and Closing TR and Average TR formula to find individual values: Avg TR = (Opening TR + Closing TR) / 2.

Answer 1

To determine the opening and closing trade receivables based on the provided data, execute the following steps:

1. Determine Revenue from Operations (Total Revenue):
- Cost of Revenue from Operations: Rs. 6,40,000
- Gross Profit Ratio: 20%
- Formula: Cost of Revenue from Operations = Revenue from Operations * (1 - Gross Profit Ratio)
- Calculation: Rs. 6,40,000 = Revenue from Operations * 0.8
- Result: Revenue from Operations = Rs. 6,40,000 / 0.8 = Rs. 8,00,000

2. Determine Credit Revenue from Operations:
- Relationship: Cash Revenue from Operations = (1/3) * Credit Revenue from Operations
- Equation: Total Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations
- Substitution: Rs. 8,00,000 = (1/3) * Credit Revenue from Operations + Credit Revenue from Operations
- Simplification: Rs. 8,00,000 = (4/3) * Credit Revenue from Operations
- Result: Credit Revenue from Operations = Rs. 8,00,000 * (3/4) = Rs. 6,00,000

3. Calculate Average Trade Receivables:
- Formula: Trade Receivables Turnover Ratio = Credit Revenue from Operations / Average Trade Receivables
- Given Ratio: 4
- Calculation: 4 = Rs. 6,00,000 / Average Trade Receivables
- Result: Average Trade Receivables = Rs. 6,00,000 / 4 = Rs. 1,50,000

4. Establish Equations for Opening and Closing Trade Receivables:
Let:
- Opening Trade Receivables = X
- Closing Trade Receivables = X + Rs. 20,000 (as provided)

Average Trade Receivables Formula:
- Average Trade Receivables = (Opening Trade Receivables + Closing Trade Receivables) / 2
- Substitution: Rs. 1,50,000 = (X + X + Rs. 20,000) / 2
- Algebraic manipulation:
- Rs. 3,00,000 = 2X + Rs. 20,000
- 2X = Rs. 3,00,000 - Rs. 20,000
- 2X = Rs. 2,80,000
- X = Rs. 1,40,000

5. Final Calculation of Opening and Closing Trade Receivables:
- Opening Trade Receivables (X): Rs. 1,40,000
- Closing Trade Receivables: Rs. 1,40,000 + Rs. 20,000 = Rs. 1,60,000

Final Values:
- Opening Trade Receivables: Rs. 1,40,000
- Closing Trade Receivables: Rs. 1,60,000