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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Ananya Ltd uses the percentage of sales method. Current sales are Rs 800 lakh and trade receivables are Rs 120 lakh. Sales are forecast to rise to Rs 1,000 lakh, with receivables staying at the same percentage of sales. The forecast trade receivables will be:

Forecast receivables are Rs 150 lakh. Receivables are 15 percent of current sales (120 divided by 800), and applying the same ratio to forecast sales of Rs 1,000 lakh gives 150. Keeping the old balance would ignore the projected sales growth.

  1. ARs 150 lakhCorrect
  2. BRs 135 lakh
  3. CRs 120 lakh
  4. DRs 187.5 lakh

Explanation

Receivables are 120/800 = 15% of sales. Forecast = 15% x 1,000 = Rs 150 lakh. Rs 120 lakh ignores the sales growth, Rs 135 lakh adds only a fraction of the increase, and Rs 187.5 lakh wrongly divides by 0.8 (1,000 x 120/640 style error).

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