Question 51 Chapter 4 of +2-B - USHA Publication 12 Class

Question 51 Chapter 4 of +2-B

Trade Payable Turnover Ratio

51. (Net Purchases/Accounts Payable T/O Ratio/Average age of Creditors) You are given the following data.
(a) Gross profit at 30% on sales (Revenue from Operation) = ₹ 60,000
(b) Inventory turnover = 7 times
(c) The opening inventory is ₹ 5,000 less than the closing inventory.
(d) Trade payable (opening) Z ₹ 30,000 ; Trade payable (closing) Z ₹ 38,000.
Find out (a) Net purchases (b) Trade payable turnover (c) Average age of trade payables.

The solution of Question 51 Chapter 4 of +2-B: –

Gross profit ratio	=	30%
If Sales	=	₹ 100
Gross profit	=	₹ 30
Cost of goods sold	=	₹ 100 – ₹ 30
	=	₹ 70
Cost of goods sold	=	₹ 60,000

Cost of goods sold	=	70	X	₹ 60,000
		30
	=	₹ 1,40,000

Inventory Turnover Ratio	=	Cost of goods sold
Inventory Turnover Ratio	=	Average inventory

7	=	1,40,000
7	=	Average inventory

Average Inventory	=	1,40,000
Average Inventory	=	7

Average Inventory	=	₹ 20,000

Average Inventory	=	Opening Inventory + Closing Inventory
Average Inventory	=	2
Let assume Opening Inventory	=	X
Closing Inventory	=	x + ₹ 5,000
Average Inventory	=	x + ( x + ₹ 5,000)
Average Inventory	=	2

₹ 20,000	=	x + ( x + ₹ 5,000)
₹ 20,000	=	2

₹ 20,000 x 2	=	2x + ₹ 5,000
₹ 40,000	=	2x + ₹ 5,000
₹ 40,000 – ₹ 5,000	=	2x
x	=	₹ 35,000
x	=	2

Opening Inventory	=	₹ 17,500
Closing Inventory	=	Opening Inventory + ₹ 5,000
	=	₹ 17,500+ ₹ 5,000
	=	₹ 22,500

(a) Computation of net purchases

Cost of goods sold	=	Opening Inventory + Purchases – Closing Inventory
₹ 1,40,000	=	₹ 17,500+ Purchases – ₹ 22,500
Purchases	=	₹ 1,40,000 – ₹ 5,000
	=	₹ 1,45,000

(b) Accounts Payable Turnover Ratio

	=	Net Purchases (Credit)
		Average Accounts Payable

Average accounts payable	=	Opening accounts payable + Closing accounts payable
Average accounts payable	=	2
	=	₹ 30,000 + ₹ 38,000
	=	2

	=	₹ 34,000

Accounts Payable Turnover Ratio	=	₹ 1,45,000
Accounts Payable Turnover Ratio	=	₹ 34,000

	=	4.26 times

Average age of Creditors	=	Number of days in a year
		Accounts Payable Turnover Ratio

	=	356
	=	4.26
Average trade receivable	=	85.6 Days

End of Solution

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