CA Final · Financial Reporting · Analysis of Financial Statements
Sundaram Textiles Ltd reports for the year: sales Rs 12,00,000 (all credit), opening trade receivables Rs 1,00,000 and closing trade receivables Rs 2,00,000. Taking a 360-day year and average receivables, what is the average collection period?
The average collection period is 45 days. Average receivables are Rs 1,50,000, so turnover on credit sales of Rs 12,00,000 is 8 times, and 360 divided by 8 gives 45 days. Using closing receivables instead of the average would wrongly give 60 days.
- A45 daysCorrect
- B90 days
- C60 days
- D30 days
Explanation
Average receivables = (1,00,000 + 2,00,000)/2 = 1,50,000. Receivables turnover = 12,00,000/1,50,000 = 8 times. Collection period = 360/8 = 45 days. Using closing receivables only gives 60 days, which is the wrong base.
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