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 |
| Average inventory | ||
| 7 | = | 1,40,000 |
| Average inventory | ||
| Average Inventory | = | 1,40,000 |
| 7 | ||
| Average Inventory | = | ₹ 20,000 |
| Average Inventory | = | Opening Inventory + Closing Inventory |
| 2 | ||
| Let assume Opening Inventory | = | X |
| Closing Inventory | = | x + ₹ 5,000 |
| Average Inventory | = | x + ( x + ₹ 5,000) |
| 2 | ||
| ₹ 20,000 | = | x + ( x + ₹ 5,000) |
| 2 | ||
| ₹ 20,000 x 2 | = | 2x + ₹ 5,000 |
| ₹ 40,000 | = | 2x + ₹ 5,000 |
| ₹ 40,000 – ₹ 5,000 | = | 2x |
| x | = | ₹ 35,000 |
| 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 |
| 2 | ||
| = | ₹ 30,000 + ₹ 38,000 | |
| 2 | ||
| = | ₹ 34,000 |
| Accounts Payable Turnover Ratio | = | ₹ 1,45,000 |
| ₹ 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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Chapter No. 8 – Company Accounts (Share Capital)
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