# Piper pipes Ltd. ahs provided the following information:

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Piper pipes Ltd. ahs provided the following information:

 Stock Turnover Ratio 6 times Gross Profit Ratio 20% on sales Sales 3,00,000 Closing stock is Rs. 10,000 more than the opening stock Opening Creditors Rs. 20,000 Closing Creditors Rs. 30,000 Trade Debtors At The End Rs. 60,000 Net Working Capital Rs. 50,000

Calculate:

(a) Average stock

(b) Purchases

(c) Creditors turnover ratio

(d) Average payment period

(e) Average collection period

(f) Working capital turnover ratio

## 1 Answer

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Cost Of Goods Sold = Sales – Gross Profit

= 3,00,000 – 20% of profit

= Rs. 2,40,000

Stock Turnover Ratio = Cost Of Goods Sold / Avaerage Stock

6 = 2,40,000 / Average Stock

Average Stock = 2,40,000 / 6 = Rs. 40,000 …. (a)

Average Stock = (Opening Stock + Closing Stock) / 2

40,000 = {Opening Stock + (10,000 + Opening Stock)} / 2

Opening stock = Rs. 35,000

Closing stock = Rs. 45,000

Cost Of Goods Sold = Opening Stock + Purchases – Closing Stock

Purchases = Cost Of Goods Sold + Closing Stock – Opening Stock

= 2,40,000 + 45,000 – 35,000

Purchases = Rs. 2,50,000.........(b)

Creditors Turnover Ratio = Credit Purchases / Average Trade Creditors

Average Trade Creditors = (Opening Creditors + Closing Creditors) / 2

= (20,000 + 30,000) / 2

= Rs. 25,000

Assuming all purchases to be credit purchases

Creditors Turnover Ratio = 2,50,000 / 25,000

Creditors Turnover Ratio = 10 Times……(c)

Average Payment Period = 365 / Creditors Turnover Ratio

= 365 / 10

Average Payment Period = 36.5 days or 37 days (approx.)…....(d)

Debtors Turnover Ratio = Credit Sales / Average Trade Debtors

= 3,00,000 / 60,000 = 5 times

Average Collection Period = 365 / Debtors Turnover Ratio

= 365 / 5

Average Collection Period = 73 days……..(e)

Working Capital Turnover Ratio = Cost Of Goods Sold / Net Working Capital

= 2,40,000 / 50,000

Working Capital Turnover Ratio = 4.8 Times…….(f)

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