CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Gaurav Textiles Ltd had annual credit sales of ₹36,00,000 and average trade receivables of ₹3,00,000 during the year. Taking a year as 360 days, what is its average collection period?
The average collection period is 30 days. Receivables turnover is credit sales of ₹36,00,000 divided by average receivables of ₹3,00,000, which gives 12 times, and dividing 360 days by 12 gives 30 days. The figure 12 is only the turnover ratio.
- A30 daysCorrect
- B12 days
- C60 days
- D36 days
Explanation
Debtors turnover = 36,00,000 / 3,00,000 = 12 times. Average collection period = 360 / 12 = 30 days. The figure 12 is the turnover ratio, not the period in days, so option 2 is wrong.
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