CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Anand Traders has annual credit sales of ₹36,00,000 and allows 30 days' credit. Customers actually pay on average 45 days after sale. Using a 360-day year, what is the average investment in receivables (taking receivables at sales value)?
Average receivables equal daily credit sales multiplied by the actual average collection period. Daily sales are 36,00,000 divided by 360, which is ₹10,000, and multiplied by 45 days gives ₹4,50,000. Using the 30-day stated term would wrongly give ₹3,00,000.
- A₹3,00,000
- B₹4,50,000Correct
- C₹5,40,000
- D₹6,00,000
Explanation
Average receivables = credit sales per day × average collection period = (36,00,000/360) × 45 = 10,000 × 45 = ₹4,50,000. Using the 30-day credit term instead gives ₹3,00,000, which ignores the actual delay in payment.
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