Question

From the following information, calculate Opening Trade Receivables and Closing Trade Receivables:
Trade Receivables Turnover Ratio - 4 times
Closing Trade Receivables were Rs 20,000 more than that in the beginning.
Cost of Revenue from operations - Rs 6,40,000.
Cash Revenue from operations = \( \frac{1}{3} \)rd of Credit Revenue from Operations
Gross Profit Ratio - 20

Hint:

Key Formulas for Turnover Ratios: - TR Turnover = Credit Sales / Avg TR. (Avg TR = (Op TR + Cl TR)/2). - Inventory Turnover = COGS / Avg Inv. (Avg Inv = (Op Inv + Cl Inv)/2). - COGS = Sales - Gross Profit OR Opening Inv + Purchases + Direct Exp - Closing Inv. Work backwards from the ratio formula, using related information (like GP ratio, Sales/COGS relation, Opening/Closing relation) to find missing values.

Answer 1

Step 1: Calculate Credit Revenue from Operations

We know that:

• Cash Revenue = \( \frac{1}{3} \)rd of Credit Revenue
• Therefore, Credit Revenue = \( \text{Total Revenue} - \text{Cash Revenue} \)

Let the total revenue be \( R \). So, Cash Revenue = \( \frac{R}{3} \) Therefore, Credit Revenue = \( R - \frac{R}{3} = \frac{2R}{3} \).

Step 2: Calculate Gross Profit and Revenue

Since the Gross Profit Ratio is 20%, we can calculate Gross Profit using the formula: \[ \text{Gross Profit} = \text{Gross Profit Ratio} \times \text{Total Revenue} \] \[ \text{Gross Profit} = 0.20 \times R \] Now, using the Cost of Revenue from Operations: \[ \text{Cost of Revenue} = 6,40,000 \] So, the formula for Gross Profit becomes: \[ \text{Gross Profit} = \text{Revenue} - \text{Cost of Revenue} \] \[ 0.20R = R - 6,40,000 \] Solving for \( R \): \[ R = 8,00,000 \]

Step 3: Calculate Trade Receivables Turnover Ratio

The Trade Receivables Turnover Ratio is calculated as: \[ \text{Trade Receivables Turnover Ratio} = \frac{\text{Net Credit Sales}}{\text{Average Trade Receivables}} \] Given that the Trade Receivables Turnover Ratio is 4, and Net Credit Sales = Credit Revenue, we can use the following: \[ 4 = \frac{ \frac{2R}{3} }{\text{Average Trade Receivables}} \] Substituting \( R = 8,00,000 \) into the equation: \[ 4 = \frac{ \frac{2 \times 8,00,000}{3} }{\text{Average Trade Receivables}} \] \[ 4 = \frac{5,33,333.33}{\text{Average Trade Receivables}} \] \[ \text{Average Trade Receivables} = \frac{5,33,333.33}{4} = 1,33,333.33 \]

Step 4: Calculate Opening and Closing Trade Receivables

Let the Opening Trade Receivables be \( X \), and we know that the Closing Trade Receivables are Rs 20,000 more than the Opening Trade Receivables: \[ \text{Closing Trade Receivables} = X + 20,000 \] The Average Trade Receivables is the average of the Opening and Closing Trade Receivables: \[ \text{Average Trade Receivables} = \frac{X + (X + 20,000)}{2} = 1,33,333.33 \] Solving for \( X \): \[ \frac{2X + 20,000}{2} = 1,33,333.33 \] \[ 2X + 20,000 = 2,66,666.66 \] \[ 2X = 2,46,666.66 \] \[ X = 1,23,333.33 \] Therefore, the Opening Trade Receivables are Rs 1,23,333.33 and the Closing Trade Receivables are: \[ 1,23,333.33 + 20,000 = 1,43,333.33 \]