 Question 51 Chapter 4 of +2-B

III. Activity Ratios

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

Also, Check out the solved question of previous Chapters: –

## Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution

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