CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)
Anand Ltd has credit purchases of Rs 36,00,000 in a 360-day year and opening and closing trade payables of Rs 5,00,000 and Rs 7,00,000. Its payables turnover ratio and average payment period are respectively:
The payables turnover is 6 times and the average payment period is 60 days. Average payables are Rs 6,00,000, the mean of opening and closing balances, and credit purchases of Rs 36,00,000 divided by this gives 6; dividing 360 days by 6 gives 60 days.
- A6 times and 60 daysCorrect
- B7.2 times and 50 days
- C5.14 times and 70 days
- D6 times and 50 days
Explanation
Average payables = (5,00,000 + 7,00,000)/2 = 6,00,000. Turnover = 36,00,000/6,00,000 = 6 times. Payment period = 360/6 = 60 days. Using closing payables gives 5.14 times and 70 days, and using opening payables gives 7.2 times and 50 days.
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