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CS Executive · Corporate Accounting and Financial Management · Working Capital Management

Sharma Traders sells goods worth Rs 36,00,000 a year (360 days), all on credit, at a selling price that includes a profit of 20% on sales. Debtors are allowed 40 days credit. If debtors are to be valued at cost, the investment in debtors is:

The investment in debtors at cost is Rs 3,20,000. Cost of sales is 80% of Rs 36 lakh, which is Rs 28.8 lakh, or Rs 8,000 per day. Multiplying by 40 days of credit gives the amount of cash blocked in debtors.

  1. ARs 4,00,000
  2. BRs 3,20,000Correct
  3. CRs 5,00,000
  4. DRs 2,88,000

Explanation

Cost of sales = 80% of 36,00,000 = Rs 28,80,000. Per day = Rs 8,000. Debtors at cost for 40 days = 40 x 8,000 = Rs 3,20,000. Rs 4,00,000 values debtors at sales price.

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