Skip to content

CA Final · Financial Reporting · Analysis of Financial Statements

Aarav Textiles Ltd reports for the year: net credit sales Rs 12,00,000; opening trade receivables Rs 2,00,000; closing trade receivables Rs 4,00,000. Taking 360 days in a year and average receivables as the base, what is the average collection period?

The average collection period is 90 days. Average receivables of Rs 3,00,000 against credit sales of Rs 12,00,000 give a turnover of 4 times, and 360 days divided by 4 equals 90 days. Using only closing receivables would wrongly give 120 days.

  1. A60 days
  2. B90 daysCorrect
  3. C120 days
  4. D180 days

Explanation

Average receivables = (2,00,000 + 4,00,000)/2 = Rs 3,00,000. Receivables turnover = 12,00,000/3,00,000 = 4 times. Collection period = 360/4 = 90 days. Using closing receivables alone gives 120 days, which ignores the averaging required.

Did you get it right without looking?

One question tells you little. A timed set on Analysis of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Analysis of Financial StatementsFree diagnostic mock

More Analysis of Financial Statements questions