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CS Executive · Corporate Accounting and Financial Management · Working Capital Management

Kaveri Ltd has annual cost of goods sold of Rs 7,20,000 (360-day year), average inventory of Rs 1,20,000, average debtors of Rs 1,80,000 and average creditors of Rs 60,000. Annual credit sales are Rs 9,00,000. Using cost of goods sold for inventory and creditors, and sales for debtors, what is the cash conversion cycle?

The computed cycle is 102 days, which is not offered, so this question cannot be answered from the options.

  1. A60 daysCorrect
  2. B50 days
  3. C90 days
  4. D30 days

Explanation

Inventory days = 1,20,000/7,20,000 x 360 = 60. Debtor days = 1,80,000/9,00,000 x 360 = 72. Creditor days = 60,000/7,20,000 x 360 = 30. Cycle = 60 + 72 - 30 = 102 days, which is not among the options; recheck: so data must be reconciled. Correct cycle is 102 days.

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