Question

(a) Compute Trade Receivables (Debtors) Turnover Ratio from the following information: Total Sales Rs. 5,20,000, Cash Sales 60% of the Credit Sales, Closing Debtors Rs. 80,000,
(b) Current Liabilities of a company are Rs. 1,60,000. Its Liquid Ratio is 1.5 : 1 and Current Ratio is 2.5 : 1. Calculate Quick Assets and Current Assets.

Answer 1

(a) Trade Receivables (Debtors) Turnover Ratio
`("Credit Revenue from Operations (Credit Sales)")/("Average Trade Receivables")`
`=("Rs. 3,25,000")/("Rs. 70,000")=4.64` Times.
Credit Revenue from Operations = Rs. 3,25,000 (WN).
Average Trade Receivables = `=(Rs. 80,000+Rs. 80,000xx3//4)/(2) = (Rs. 1,40,000)/(2) = Rs. 70,000`
Working Note: Calculation of Credit Sales:
Let Credit Sales be x.
`therefore` Cash Sales is 60% of x = 0.6x
`therefore` Credit Sales + Cash Sales = Total Sales
x + 0.6x = Rs. 5,20,000
1.6x = Rs. 5,20,000
x = `(Rs. 5,20,000)/(1.6)` = Rs. 3,25,000 (Credit Sales).
(b) Current Liabilities = Rs. 1,60,000
Liquid Ratio = `("Liquid Assets")/("Current Liabilities")`
1.5 = `("Liquid Assets")/("Rs. 1,60,000")`
`therefore` Liquid Assets = Rs. 1,60,000 `xx` 1.5 = Rs. 2,40,000.
Current Assets = Current Ratio `xx` Current Liabilities
`= 2.5 xx` Rs. 1,60,000 = Rs. 4,00,000.