CMA Intermediate · Financial Management and Business Data Analytics · Payable Management
In a payables analysis, a data analyst computes average payment period = (Average trade payables / Credit purchases) x 365. Gupta Steels Ltd has opening payables of ₹3,00,000, closing payables of ₹5,00,000 and credit purchases of ₹29,20,000 for the year. What is the average payment period?
The average payment period is 50 days. Average payables are ₹4,00,000, and dividing by credit purchases of ₹29,20,000 and multiplying by 365 gives 50 days. Using only the closing or opening balance would misstate the period.
- A50 daysCorrect
- B30 days
- C36.5 days
- D60 days
Explanation
Average payables = (3,00,000 + 5,00,000)/2 = ₹4,00,000. Period = 4,00,000/29,20,000 x 365 = 50 days. Using closing payables gives 62.5 days; using opening gives 37.5 days.
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