CA Intermediate · Financial Management and Strategic Management · Management of Receivables
Sharma Traders has annual credit sales of Rs 36,00,000 and a 360-day year. Its average collection period is 40 days. Assuming sales are uniform through the year, what is the average investment in receivables (at sales value)?
Average receivables are Rs 4,00,000. Daily credit sales are Rs 36,00,000 divided by 360, which is Rs 10,000, and multiplying this by the 40-day collection period gives Rs 4,00,000 invested in receivables.
- ARs 4,00,000Correct
- BRs 3,60,000
- CRs 40,000
- DRs 9,00,000
Explanation
Daily credit sales = 36,00,000/360 = Rs 10,000. Receivables = 10,000 x 40 = Rs 4,00,000. Check: receivables turnover = 360/40 = 9; 36,00,000/9 = Rs 4,00,000. Rs 3,60,000 wrongly uses 36 days; Rs 9,00,000 confuses turnover with days.
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