Question

Credit Revenue from Operations of MS Limited during the year was 1,80,000. If Trade Receivable Turnover Ratio is 4 times, calculate Trade Receivables in the beginning and at the end of the year. You are informed that Closing Trade Receivables are two times in comparison to Opening Trade Receivables​

Answer 1

Explanation:

★ Trade Receivable Turnover Ratio :

$\sf{\longrightarrow{\dfrac{Credit \: Revenue \: from \: Operations}{Average \:Trade \: Receivables}}}$

$\sf{\longrightarrow{\dfrac{Credit \: Revenue \: from \: Operations}{ \frac{Ope.ning \:Trade\: Receivables \: + \: Closing \:Trade\: Receivables}{2}}}}$

$\sf{\longrightarrow\:4\:=\:{\dfrac{1,80,000}{Average \:Trade \: Receivables}}}$

Average Trade Receivables = 45,000

★ Average Trade Receivables =

$\sf{\longrightarrow{\dfrac{Ope.ning \:Trade\: Receivables \: + \: Closing \:Trade\: Receivables}{2}}}$

$\sf{\longrightarrow\:45,000\:=\:{\dfrac{Ope.ning \:Trade\: Receivables \: + \: Closing \:Trade\: Receivables}{2}}}$

Let,

• Opening Trade Receivables = x
• Closing Trade Receivables = 2x

$\sf{\longrightarrow\:45,000\:=\:{\dfrac{x \: + \: 2x}{2}}}$

$\longrightarrow$ 90,000 = x + 2x

$\longrightarrow$ 90,000 = 3x

$\longrightarrow$ x = 90,000/3

$\longrightarrow$ x = 30,000

Opening Trade Receivables = 30,000

• Closing Trade Receivables = 2x

$\longrightarrow$ 2 × 30,000

$\longrightarrow$ 60,000

Closing Trade Receivables = 60,000

Therefore,

• Opening Trade Receivables = 30,000

• Closing Trade Receivables = 60,000