CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Dhruv Pipes had total sales of ₹30,00,000 for the year, of which ₹24,00,000 were credit sales. Debtors were ₹3,00,000 at the start of the year and ₹5,00,000 at the end. Using average debtors and a 360-day year, what is the average collection period?
The average collection period is 60 days. Average debtors are ₹4,00,000, and dividing credit sales of ₹24,00,000 by this gives a turnover of 6 times. Dividing 360 days by 6 gives 60 days. Cash sales and closing balances should not be used.
- A60 daysCorrect
- B75 days
- C45 days
- D48 days
Explanation
Average debtors = (3,00,000 + 5,00,000)/2 = ₹4,00,000. Receivables turnover = 24,00,000/4,00,000 = 6 times, so the collection period = 360/6 = 60 days. Using closing debtors gives 75 days, using opening debtors gives 45 days, and using total sales including cash sales gives 48 days. All of these are wrong.
Did you get it right without looking?
One question tells you little. A timed set on Management of Receivables shows your real accuracy, how long you take and where you lose marks.
More Management of Receivables questions
- Kapoor Ltd currently has credit sales of ₹60,00,000, with variable cost at 70% of sales, bad debts of 2% of sales and average collection per…
- A firm uses factoring on a without-recourse basis. Which statement best describes the position?
- A firm uses factoring on a without-recourse basis. Which statement about this arrangement is correct?
- Sharma Traders sells on credit with terms of net 60 days. Annual credit sales are Rs 36,00,000 (360-day year), spread evenly. Variable cost …
- Which of the following is one of the 'five Cs' of credit used to assess the creditworthiness of a customer while framing a credit policy?
- Sharma Traders has annual credit sales of ₹36,00,000 and offers terms of 2/10, net 45. Customers representing 40% of sales take the discount…