CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)
Ritu Textiles has annual credit purchases of ₹7,30,000 and average trade payables of ₹80,000. Taking a 365-day year, what is the average payment period (in days) and the creditors turnover ratio?
Creditors turnover is 9.125 times and the average payment period is 40 days. Turnover equals annual credit purchases of ₹7,30,000 divided by average payables of ₹80,000, and dividing 365 days by 9.125 gives 40 days.
- A40 days; 9.125 timesCorrect
- B45 days; 8.1 times
- C40 days; 8.1 times
- D36 days; 9.125 times
Explanation
Creditors turnover = 7,30,000 / 80,000 = 9.125 times. Average payment period = 365 / 9.125 = 40 days. The 36-day option uses 330 days or a wrong division; the 8.1 figure arises from dividing by a wrong payable balance.
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
- Which of the following is a feature of trade credit as a source of short-term finance?
- Gupta Ltd is offered a cash discount of 1.5/15, net 45 by its supplier. Its bank overdraft costs 18% p.a. Using a 360-day year and the simpl…
- Kapoor Ltd has annual purchases of Rs 7,20,000 (360 days), and a supplier offers '1/15, net 45'. Kapoor can borrow from its bank at 12% p.a.…
- In the context of management of payables, which of the following best describes 'stretching accounts payable'?
- Under the trade credit term '2/10, net 30', a supplier offers a cash discount of 2% if payment is made within 10 days, otherwise the full am…
- Under the trade credit term '2/10, net 30', a buyer who skips the cash discount and pays on the 30th day instead of the 10th day is effectiv…