CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Nair Pharma has annual credit sales of ₹90,00,000. Trade receivables were ₹10,00,000 at the start of the year and ₹20,00,000 at the end. Using average receivables and a 360-day year, its average collection period is:
The average collection period is 60 days. Average receivables are ₹15,00,000, so debtors turnover on ₹90,00,000 of credit sales is 6 times, and dividing 360 days by 6 gives 60 days. Using only closing or opening balances would give 80 or 40 days.
- A40 days
- B80 days
- C30 days
- D60 daysCorrect
Explanation
Average receivables = (10,00,000 + 20,00,000)/2 = ₹15,00,000. Debtors turnover = 90,00,000/15,00,000 = 6 times. Collection period = 360/6 = 60 days. Using only closing debtors gives 80 days, and using only opening debtors gives 40 days.
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