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

Vardhan Traders has annual credit sales of ₹14,40,000. Its average trade receivables are ₹2,40,000 and average trade payables are ₹1,80,000. Annual credit purchases are ₹10,80,000. Taking a year of 360 days, what is the difference in days between the average collection period and the average payment period?

Both periods are 60 days, so the difference is zero. Receivables turnover is 14,40,000 divided by 2,40,000, which is 6, giving 60 days. Payables turnover is 10,80,000 divided by 1,80,000, which is also 6, giving 60 days.

  1. A20 daysCorrect
  2. B30 days
  3. C60 days
  4. D10 days

Explanation

Receivables turnover = 14,40,000/2,40,000 = 6, so collection period = 360/6 = 60 days. Payables turnover = 10,80,000/1,80,000 = 6, so payment period = 60 days... Recomputing: 360/6 = 60 days for both, giving a difference of 0. Since this contradicts the key, the correct reading is that both periods are 60 days.

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