Question

Credit Purchases Rs.6,00,000; Trade Payables Turnover Ratio 5 times. Calculate Closing Creditors, if Closing Creditors are Rs.10,000 less than Opening Creditors.

• A. Rs.1,15,000
• B. Rs.1,25,000
• C. Rs.1,30,000
• D. Rs.1,10,000

Hint:

Formula: \[ \text{Trade Payables Turnover Ratio} = \frac{\text{Credit Purchases}} {\text{Average Trade Payables}} \] and \[ \text{Average Trade Payables} = \frac{\text{Opening}+\text{Closing}}{2} \]

Answer 1

The Correct Option is B

Concept: Trade Payables Turnover Ratio is calculated as: \[ \text{Trade Payables Turnover Ratio} = \frac{\text{Credit Purchases}} {\text{Average Trade Payables}} \] where: \[ \text{Average Trade Payables} = \frac{\text{Opening Creditors}+\text{Closing Creditors}}{2} \]

Step 1: Calculate Average Trade Payables.
Given: \[ \text{Credit Purchases} = Rs.6,00,000 \] \[ \text{Trade Payables Turnover Ratio} = 5 \] Thus: \[ 5 = \frac{6,00,000}{\text{Average Creditors}} \] \[ \text{Average Creditors} = \frac{6,00,000}{5} \] \[ = Rs.1,20,000 \]

Step 2: Form equation using opening and closing creditors.
Let Closing Creditors: \[ = x \] Given: \[ \text{Closing Creditors are Rs.10,000 less than Opening Creditors} \] Therefore: \[ \text{Opening Creditors} = x + 10,000 \] Average creditors: \[ \frac{x + (x+10,000)}{2} = 1,20,000 \]

Step 3: Solve the equation.
\[ \frac{2x+10,000}{2} = 1,20,000 \] \[ 2x+10,000 = 2,40,000 \] \[ 2x = 2,30,000 \] \[ x = Rs.1,15,000 \]

Step 4: Identify the correct option.
Thus, Closing Creditors: \[ \boxed{Rs.1,15,000} \] Hence, the correct answer is: \[ \boxed{(A)} \]