CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Gupta Ltd has annual credit sales of ₹36,00,000, and the debtors at year end are ₹6,00,000. Taking a year of 360 days, what is the average collection period?
The average collection period is 60 days. Debtors turnover is credit sales of ₹36,00,000 divided by debtors of ₹6,00,000, which is 6 times. Dividing 360 days by 6 gives 60 days. The same result follows from debtors divided by sales multiplied by 360.
- A60 daysCorrect
- B30 days
- C90 days
- D45 days
Explanation
Debtors turnover = 36,00,000 / 6,00,000 = 6 times. Collection period = 360 / 6 = 60 days. Check: 6,00,000/36,00,000 × 360 = 60. Using 30 days would come from assuming a 180-day basis.
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