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CMA Intermediate · Financial Management and Business Data Analytics · Financial Ratio Analysis

Ananya Textiles Ltd. had net credit sales of ₹12,00,000 for the year. Opening trade receivables were ₹1,50,000 and closing trade receivables were ₹2,50,000. Taking a 360-day year, what is the average collection period?

The average collection period is 60 days. Average receivables are ₹2,00,000, so turnover on credit sales of ₹12,00,000 is 6 times, and 360 days divided by 6 gives 60 days. Using only closing receivables would wrongly give 75 days.

  1. A60 daysCorrect
  2. B72 days
  3. C50 days
  4. D75 days

Explanation

Average receivables = (1,50,000 + 2,50,000)/2 = ₹2,00,000. Receivables turnover = 12,00,000/2,00,000 = 6 times. Collection period = 360/6 = 60 days. Using closing receivables alone gives 75 days, which is wrong because the average balance is required.

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