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CA Final · Financial Reporting · Analysis of Financial Statements

Kaveri Textiles Ltd reports for the year: net sales Rs 12,00,000 lakh... correction: net credit sales Rs 9,00,000, opening trade receivables Rs 1,00,000 and closing trade receivables Rs 2,00,000. Assuming 360 days in a year, what is the average collection period?

The average collection period is 60 days. Average receivables are Rs 1,50,000, so credit sales of Rs 9,00,000 give a turnover of 6 times, and 360 days divided by 6 equals 60 days. Using only closing or opening balances would give a wrong figure.

  1. A40 days
  2. B60 daysCorrect
  3. C72 days
  4. D36 days

Explanation

Average receivables = (1,00,000 + 2,00,000)/2 = 1,50,000. Receivables turnover = 9,00,000/1,50,000 = 6 times. Collection period = 360/6 = 60 days. Using closing receivables only gives 9,00,000/2,00,000 = 4.5 times and 80 days, which is not the average-based figure; 40 days comes from using opening receivables only (9 times).

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