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CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Sharma Traders has annual credit sales of Rs 24,00,000 and average debtors of Rs 4,00,000. Taking a year as 360 days, what is its average collection period?

The average collection period is 60 days. Debtors turnover is credit sales of Rs 24,00,000 divided by average debtors of Rs 4,00,000, giving 6 times, and dividing 360 days by 6 gives 60 days.

  1. A30 days
  2. B45 days
  3. C60 daysCorrect
  4. D6 days

Explanation

Debtors turnover = 24,00,000 / 4,00,000 = 6 times. Collection period = 360 / 6 = 60 days. The 6 days option wrongly uses the turnover figure as days; 30 days uses a 180-day base.

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