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CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Arjun Pharma has annual credit sales of Rs 36,00,000, and the average debtors balance is Rs 6,00,000. Annual credit purchases are Rs 24,00,000 and average creditors are Rs 3,00,000. Taking a 360-day year, what is the difference (in days) between the debtors collection period and the creditors payment period?

The difference is 15 days. Debtors take 60 days to pay (Rs 6,00,000 over Rs 36,00,000 times 360), while the firm pays creditors in 45 days (Rs 3,00,000 over Rs 24,00,000 times 360). Subtracting 45 from 60 gives 15 days.

  1. A15 days
  2. B30 daysCorrect
  3. C45 days
  4. D60 days

Explanation

Debtors collection period = 6,00,000 ÷ 36,00,000 × 360 = 60 days. Creditors payment period = 3,00,000 ÷ 24,00,000 × 360 = 45 days. Difference = 60 − 45 = 15 days. Hence the 30-day option is incorrect.

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