Question

Calculate opening and closing Trade Payables from the following information :
Total purchases ₹ 15,00,000;
Cash purchases are 25% of credit purchases;
Trade payables turnover ratio is 4 times;
Closing trade payables are two times of opening trade payables.

Hint:

When calculating ROI, remember to use Profit before interest and tax as numerator, and total capital employed as denominator.

Answer 1

Step 1: Calculate Credit Purchases
Let credit purchases = ₹ x
Then cash purchases = 25% of x = 0.25x
Total purchases = x + 0.25x = 1.25x
So,
\[ 1.25x = 15,00,000 \] \[ x = \frac{15,00,000}{1.25} = ₹ 12,00,000 \] Thus, credit purchases = ₹ 12,00,000 Step 2: Average Trade Payables
Trade Payables Turnover Ratio = \(\frac{\text{Net Credit Purchases}}{\text{Average Trade Payables}}\)
Therefore: \[ 4 = \frac{12,00,000}{\text{Average Trade Payables}} \] \[ \text{Average Trade Payables} = ₹ 3,00,000 \] Step 3: Opening and Closing Payables
Let opening payables = ₹ y
Then closing payables = 2y
So, average = \(\frac{y + 2y}{2} = 1.5y\) Hence: \[ 1.5y = 3,00,000 \] \[ y = ₹ 2,00,000 \] Therefore: Opening Payables = ₹ 2,00,000
Closing Payables = ₹ 4,00,000