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CA Final · Financial Reporting · Analysis of Financial Statements

Sundaram Textiles Ltd reports the following for the year: net sales Rs 12,00,000 (all on credit), opening trade receivables Rs 1,30,000 and closing trade receivables Rs 1,70,000. Taking a 360-day year and using average receivables, what is the average collection period?

The average collection period is 45 days. Average receivables are Rs 1,50,000, so receivables turnover is 8 times on credit sales of Rs 12,00,000, and 360 days divided by 8 gives 45 days. Using closing receivables instead would wrongly give about 51 days.

  1. A45 days
  2. B51 days
  3. C54 daysCorrect
  4. D60 days

Explanation

Average receivables = (1,30,000 + 1,70,000)/2 = Rs 1,50,000. Receivables turnover = 12,00,000 / 1,50,000 = 8 times. Collection period = 360/8 = 45 days. Wait, check: 360/8 = 45, so the correct figure is 45 days; using closing receivables gives 1,70,000 -> 7.06 times -> about 51 days, which is the distractor.

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