CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis
Kapoor Ltd. has annual credit sales of Rs 36,00,000 and average trade receivables of Rs 6,00,000. Taking a year as 360 days, what is the average collection period?
The average collection period is 60 days. Debtors turnover is credit sales of Rs 36,00,000 divided by average receivables of Rs 6,00,000, which gives 6 times. Dividing 360 days by 6 gives 60 days.
- A30 days
- B45 days
- C60 daysCorrect
- D90 days
Explanation
Debtors turnover = 36,00,000 / 6,00,000 = 6 times. Average collection period = 360 / 6 = 60 days. Check: 6,00,000/36,00,000 x 360 = 60. Using 30 days would come from treating turnover as 12 times.
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