Question

Calculate Trade Receivables Turnover Ratio

• A. 8.23 : 1
• B. 8.18 times
• C. 0.0818
• D. 8.81 : 1
• A. 30 days
• B. 60 days
• C. 45 days
• D. 15 days
• A. 29.6 times
• B. 2.96 times
• C. 0.296
• D. 2.69 : 1
• A. 121 days
• B. 123 days
• C. 132 days
• D. 133 days
• A. Liquidity Ratio
• B. Solvency Ratio
• C. Activity Ratio
• D. Profitability Ratio

Answer 1

The Correct Option is B

To calculate the Trade Receivables Turnover Ratio, follow these steps:

1. Formula Identification: The Trade Receivables Turnover Ratio is calculated as:

Trade Receivables Turnover Ratio = Revenue from Operations / Average Trade Receivables

2. Trade Receivables Determination: Trade Receivables comprise Trade Debtors and Bills Receivable.

Based on the provided data:

• Trade Debtors = ₹59,000
• Bills Receivable = ₹48,000

Consequently, Total Trade Receivables = ₹59,000 + ₹48,000 = ₹1,07,000

3. Value Substitution: Insert the values from the table:

• Revenue from Operations = ₹8,75,000
• Average Trade Receivables = ₹1,07,000

Trade Receivables Turnover Ratio = ₹8,75,000 / ₹1,07,000 = 8.18 times

The final result is: 8.18 times

Answer 2

The Average Collection Period is determined by the formula:

Average Collection Period = $ \frac{365}{\text{Trade Receivables Turnover Ratio}} $

Given a Trade Receivables Turnover Ratio of 8.18 times, the Average Collection Period is calculated as:

Average Collection Period = $ \frac{365}{8.18} = 44.6 \approx 45 \, \text{days} $

Therefore, the correct answer is: (3) 45 days

Answer 3

The Trade Payables Turnover Ratio is calculated using the formula: Trade Payables Turnover Ratio = Purchases / Average Trade Payables.

The given values are: Purchases = ₹4,20,000, Creditors = ₹90,000, and Bills Payable = ₹52,000.

Total Trade Payables are calculated as: Total Trade Payables = Creditors + Bills Payable = ₹90,000 + ₹52,000 = ₹1,42,000.

In the absence of opening balances, the ending balance is used as the average. Therefore, Average Trade Payables = Total Trade Payables = ₹1,42,000.

Substituting these values into the formula yields: Trade Payables Turnover Ratio = ₹4,20,000 / ₹1,42,000 ≈ 2.96 times.

The Trade Payables Turnover Ratio is consequently determined to be 2.96 times.

Answer 4

The Average Payment Period indicates the speed at which a company settles its supplier dues. It is calculated using the formula:

Average Payment Period = (Average Accounts Payable / Purchases) × 365

Given the following data:

• Creditors = ₹90,000
• Bills Payable = ₹52,000
• Total Purchases = ₹4,20,000

The Average Accounts Payable is determined as: (Creditors + Bills Payable) = ₹90,000 + ₹52,000 = ₹1,42,000

Substituting these values into the Average Payment Period formula:

Average Payment Period = (₹1,42,000 / ₹4,20,000) × 365

Performing the calculation:

Average Payment Period = 0.3381 × 365

Average Payment Period ≈ 123.38 days

The nearest whole number for the Average Payment Period is 123 days.

Answer 5

Trade Receivables Turnover Ratio and Trade Payables Turnover Ratio are classified as Activity Ratios.

Activity Ratios, also known as efficiency or turnover ratios, quantify a company's asset utilization effectiveness. They evaluate performance in managing current assets and liabilities, reflecting operational efficiency. The provided data for analysis is as follows:

Particulars	₹
Revenue from Operations	8,75,000
Creditors	90,000
Bills Receivable	48,000
Bills Payable	52,000
Purchases	4,20,000
Trade Debtors	59,000

Calculations:

• Trade Receivables Turnover Ratio: This metric indicates the speed at which a company collects its receivables. The formula is \( \text{Trade Receivables Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}} \). For this calculation, Revenue from Operations (assuming all sales are credit) and Trade Debtors (for average trade receivables) will be used.
• Trade Payables Turnover Ratio: This metric shows how rapidly a company settles its obligations to suppliers. The formula is \( \text{Trade Payables Turnover Ratio} = \frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}} \). Purchases will be used as Net Credit Purchases, and Creditors or Bills Payable represent trade payables.

These ratios are critical indicators of a company's operational efficiency in managing working capital related to receivables and payables. Their understanding and optimization can lead to improved cash flow and operational success.