CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Kapoor Ltd has annual credit sales of ₹2,40,00,000 (360-day year) and a current average collection period of 30 days. It plans to offer terms '2/10, net 30'. Customers accounting for 50% of sales are expected to take the discount, paying on day 10, and the rest will continue to pay on day 30. What is the new average collection period?
The new average collection period is the weighted average of payment times: half the sales are paid on day 10 and half on day 30. That gives 0.5 x 10 plus 0.5 x 30, which equals 20 days.
- A20 daysCorrect
- B10 days
- C15 days
- D25 days
Explanation
New average collection period = 0.5 x 10 + 0.5 x 30 = 5 + 15 = 20 days. Option 3 comes from averaging 10 and 20 incorrectly. Option 2 assumes everyone takes the discount. Option 4 simply averages 20 and 30 with a wrong weight.
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