CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)
Kiran Traders has annual credit purchases of Rs 7,20,000 and an average payables balance of Rs 1,20,000. Taking a 360-day year, what is its average payment period?
The average payment period is 60 days. Creditors turnover is credit purchases of Rs 7,20,000 divided by average payables of Rs 1,20,000, which is 6 times, and dividing 360 days by 6 gives 60 days.
- A60 daysCorrect
- B30 days
- C45 days
- D90 days
Explanation
Creditors turnover = 7,20,000 / 1,20,000 = 6 times. Average payment period = 360 / 6 = 60 days. Check: 1,20,000/7,20,000 x 360 = 60. Using monthly purchases as the base would wrongly give 30 days.
Did you get it right without looking?
One question tells you little. A timed set on Management of Payables (Creditors) shows your real accuracy, how long you take and where you lose marks.
More Management of Payables (Creditors) questions
- Sharma Traders buys goods on terms '2/10, net 40'. Taking the cash discount means paying on day 10 instead of day 40. Using a 360-day year a…
- Sharma Traders buys on terms '2/10, net 40'. Taking a 360-day year and ignoring compounding, the approximate annual cost of forgoing the dis…
- Verma Ltd buys on terms 3/10, net 60 and purchases Rs 4,90,000 worth (gross invoice value) of goods per lot. It can pay on day 10 taking the…
- Which of the following is a recognised advantage to a buyer of using trade credit as a source of short-term finance?
- Mehta Traders buys goods on terms '2/10, net 30'. If it forgoes the discount and pays on day 30, the approximate annualised cost of trade cr…
- Which of the following is a recognised technique or arrangement for managing trade payables in which the buyer's bank pays the supplier earl…