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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Calculate the Trade Receivables Turnover Ratio in each of the following alternative cases:
Case 1: Net Credit Sales ₹4,00,000; Average Trade Receivables ₹1,00,000.
Case 2: Revenue from Operations (Net Sales) ₹30,00,000; Cash Revenue from Operations, i.e., Cash Sales ₹6,00,000; Opening Trade Receivables ₹2,00,000; Closing Trade Receivables ₹6,00,000.
Case 3: Cost of Revenue from Operations, or Cost of Goods Sold, ₹3,00,000; Gross Profit on Cost 25%; Cash Sales 20% of Total Sales; Opening Trade Receivables ₹50,000; Closing Trade Receivables ₹1,00,000.
Case 4: Cost of Revenue from Operations, or Cost of Goods Sold, ₹4,50,000; Gross Profit on Sales 20%; Cash Sales 25% of Net Credit Sales; Opening Trade Receivables ₹90,000; Closing Trade Receivables ₹60,000.
Case 1
Trade Receivables Turnover Ratio = Net Credit Sales ÷ Average Trade Receivables = 4,00,000 ÷ 1,00,000 = 4 times
Case 2
Net Credit Sales = Total Sales − Cash Sales = 30,00,000 − 6,00,000 = ₹24,00,000
Average Trade Receivables = (2,00,000 + 6,00,000) ÷ 2 = ₹4,00,000
Trade Receivables Turnover Ratio = 24,00,000 ÷ 4,00,000 = 6 times
Case 3
Gross Profit = 25% on Cost = 3,00,000 × 25 ÷ 100 = ₹75,000
Total Sales = Cost of Goods Sold + Gross Profit = 3,00,000 + 75,000 = ₹3,75,000
Cash Sales = 20% of Total Sales = 3,75,000 × 20 ÷ 100 = ₹75,000
Credit Sales = Total Sales − Cash Sales = 3,75,000 − 75,000 = ₹3,00,000
Average Trade Receivables = (50,000 + 1,00,000) ÷ 2 = ₹75,000
Trade Receivables Turnover Ratio = 3,00,000 ÷ 75,000 = 4 times
Case 4
Let Sales = x. Since Gross Profit is 20% of Sales (a margin): Gross Profit = 0.20x.
Sales = Cost of Goods Sold + Gross Profit
x = 4,50,000 + 0.20x
0.80x = 4,50,000
x = ₹5,62,500 (Total Sales)
Let Credit Sales = a. Cash Sales = 25% of a = 0.25a.
Total Sales = Cash Sales + Credit Sales
5,62,500 = 0.25a + a = 1.25a
a = ₹4,50,000 (Credit Sales)
Average Trade Receivables = (90,000 + 60,000) ÷ 2 = ₹75,000
Trade Receivables Turnover Ratio = Credit Sales ÷ Average Trade Receivables = 4,50,000 ÷ 75,000 = 6 times
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.105 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
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