Calculate the amount of Opening Trade Receivables and Closing Trade Receivables from the following information:
Trade Receivables Turnover Ratio = 5 times
Cost of Revenue from Operations = ₹ 8,00,000
Gross Profit Ratio = 20%
Closing Trade Receivables were ₹ 40,000 more than Opening
Cash Sales = \( \frac{1}{4} \) of Credit Sales
Trade Receivables Turnover Ratio = 5 times
Cost of Revenue from Operations = ₹ 8,00,000
Gross Profit Ratio = 20%
Closing Trade Receivables were ₹ 40,000 more than Opening
Cash Sales = \( \frac{1}{4} \) of Credit Sales
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Solution and Explanation
Gross Profit = 20% of Sales → COGS = 80% of Sales = ₹8,00,000
⇒ Total Sales = ₹10,00,000
Cash Sales = ¼ of Credit Sales
Let Credit Sales = x, then Cash Sales = x/4
Total Sales = x + x/4 = 5x/4
⇒ 5x/4 = 10,00,000 ⟹ x = ₹8,00,000
⟹ Credit Sales = ₹8,00,000
Average Trade Receivables = Credit Sales / Trade Receivables Turnover Ratio (TRTR)
= ₹8,00,000 / 5 = ₹1,60,000
Let Opening Trade Receivables = x, then Closing = x + ₹40,000
Average = (x + (x + 40,000)) / 2 = (2x + 40,000) / 2
⇒ (2x + 40,000) / 2 = ₹1,60,000
⇒ 2x + 40,000 = 3,20,000 ⟹ x = ₹1,60,000
Opening Trade Receivables = ₹1,60,000
Closing Trade Receivables = ₹2,00,000
Final Answer: Opening = ₹1,60,000, Closing = ₹2,00,000
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