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:

Steps for TRTR problems: 1. Find Credit Revenue (Sales): Total Sales = COGS / (1 - GPR). Credit Sales = Total Sales - Cash Sales (or use given relationship). 2. Find Average Trade Receivables = Credit Revenue / TRTR. 3. Use the relationship between Opening and Closing TR and Average TR formula to find individual values: Avg TR = (Opening TR + Closing TR) / 2.

Answer 1

Step 1: Calculate Total Revenue from Operations (Sales):
Gross Profit Ratio = 20\% (This is usually assumed on Sales unless stated otherwise).
Let Total Revenue from Operations (Sales) be X.
Cost of Revenue from Operations (COGS) = Sales - Gross Profit
Rs 6,40,000 = X - (20\% of X) = X - 0.20X = 0.80X
X = Rs 6,40,000 / 0.80 = Rs 8,00,000.
Total Revenue from Operations = Rs 8,00,000.
Step 2: Calculate Credit Revenue from Operations:
Let Credit Revenue from Operations be Y.
Cash Revenue from Operations = \( \frac{1}{3} \) Y.
Total Revenue = Cash Revenue + Credit Revenue
Rs 8,00,000 = \( \frac{1}{3} \) Y + Y = \( \frac{4}{3} \) Y
Y = Rs 8,00,000 \( \times \) \( \frac{3}{4} \) = Rs 6,00,000.
Credit Revenue from Operations = Rs 6,00,000.
Step 3: Calculate Average Trade Receivables:
Trade Receivables Turnover Ratio (TRTR) = Credit Revenue from Operations / Average Trade Receivables
4 = Rs 6,00,000 / Average Trade Receivables
Average Trade Receivables = Rs 6,00,000 / 4 = Rs 1,50,000.
Step 4: Calculate Opening and Closing Trade Receivables:
Let Opening Trade Receivables be OTR.
Closing Trade Receivables (CTR) = OTR + Rs 20,000.
Average Trade Receivables = (Opening Trade Receivables + Closing Trade Receivables) / 2
Rs 1,50,000 = (OTR + OTR + Rs 20,000) / 2
Rs 1,50,000 = (2 * OTR + Rs 20,000) / 2
Rs 3,00,000 = 2 * OTR + Rs 20,000
2 * OTR = Rs 3,00,000 - Rs 20,000 = Rs 2,80,000
OTR = Rs 2,80,000 / 2 = Rs 1,40,000.
Closing Trade Receivables (CTR) = OTR + Rs 20,000 = Rs 1,40,000 + Rs 20,000 = Rs 1,60,000.
Results:
Opening Trade Receivables = Rs 1,40,000
Closing Trade Receivables = Rs 1,60,000