Question

Total purchases Rs. 4,50,000; Cash Purchases Rs. 1,50,000; Creditors Rs.50,000; Bills payable Rs.10,000; Trade payable turnover ratio will be:

Answer 1

ANSWER :

• ❖ If Total Purchases is Rs. 4,50,000; Cash Purchases is Rs. 1,50,000; Creditors is Rs. 50,000 and Bills Payable is Rs. 10,000; then Trade Payable Turnover Ratio will be 10 times.

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SOLUTION :

❒ Given :-

• Total Purchases = Rs. 4,50,000

• Cash Purchases = Rs. 1,50,000

• Creditors = Rs. 50,000

• Bills Payable = Rs. 10,000

❒ To Calculate :-

• Trade Payable Turnover Ratio = ?

❒ Calculation :-

Here,

• Total Purchases = Rs. 4,50,000

• Cash Purchases = Rs. 1,50,000

So,

• ✠ Net Credit Purchase = Total Purchase - Cash Purchase

➨ Net Credit Purchase = Rs. 4,50,000 - Rs. 1,50,000

➨ Net Credit Purchase = Rs. 3,00,000

Again,

• Creditors = Rs. 50,000

• Bills Payable = Rs. 10,000

So,

• ✠ Average Trade Payable = $\bold{ \dfrac{Creditors + Bills \: \: Payable }{2}}$

➨ Average Trade Payable = $\rm{ \dfrac{Rs. 50,000 + Rs. 10,000}{2}}$

➨ Average Trade Payable = $\rm{ \dfrac{Rs. 60,000}{2}}$

➨ Average Trade Payable = Rs. 30,000

Now,

• $\bigstar \: \: \sf{Trade \: \: Payable \: \: Turnover \: \: Ratio = \dfrac{ Net \: \: Credit \: \: Purchase}{ Average \: \: Trade \: \: Payable \: }}$

$\implies \: \sf{Trade \: \: Payable \: \: Turnover \: \: Ratio = \dfrac{Rs. 3,00,000 }{ Rs. 30,000 }}$

$\therefore \: \sf{Trade \: \: Payable \: \: Turnover \: \: Ratio = 10 \: \: times}$

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MORE TO KNOW :

❍ Trade Payable Turnover Ratio :-

• ✎ Trade Payable Turnover Ratio is a measure for short term liquidity of a firm or a company.

• ✎ Trade Payable Turnover Ratio used to quantify the rate at which an organization or a company or a firm pays off the debťs to its suppliers.

• ✎ Trade Payable Turnover Ratio shows how many times an organization or a company or a firm is able to pay its creditors over a period of time and hence, it is expressed in the units of 'times'.

❍ Formula for Calculating Trade Payable Turnover Ratio :-

• ✎ $\rm{Trade \: \: Payable \: \: Turnover \: \: Ratio = \dfrac{Net \: \: Credit \: \: Purchase}{Average \: \: Trade \: \: Payable \: }}$