[CBSE] Q 107 Solution Accounting Ratios of TS Grewal (2023-24)

Solution of Question number 107 of the Accounting Ratios of TS Grewal Book 2023-24 CBSE Board?

From the information given below, calculate Trade Receivables Turnover Ratio.

Credit Revenue from Operations, i.e., Credit Sales ₹ 8,00,000; Opening Trade Receivables ₹ 1,20,000 and Closing Trade Receivables ₹ 2,00,000.

State, giving reason, which of hte following would increae, decrease or not change Trade Receivables Turnover Ratio:

(i) Collection from Trade Receivables ₹ 40,000.

(ii) Credit Revenue from Operations, i.e., Credit Sales ₹ 80,000.

(iii) Sales Return ₹ 20,000.

(iv) Credit Purchase ₹ 1,60,000.

[Ans.: Trade Receivables Turnover Ratio = 5 Times; (i) Increase; (ii) Decreasse; (iii) Increase; (iv) No Change.]

Solution:-

Solution:-

(i) Collection from Trade Receivables ₹ 40,000

Let’s break down the impact of collecting ₹ 40,000 from trade receivables on the Trade Receivables Turnover Ratio step by step:

Trade Receivables Turnover Ratio Formula:

Trade Receivables Turnover Ratio

= Credit Revenue from OperationsAverage Trade Receivables

Where:

Credit Revenue from Operations: ₹ 8,00,000 (unchanged in this case)

Average Trade Receivables: Calculated as:

Average Trade Receivables = Opening Trade Receivables + Closing Trade Receivables

Step 1: Current Average Trade Receivables

Average Trade Receivables (before collection)} = 1,20,000 + 2,00,000= ₹ 1,60,000

Step 2: Current Trade Receivables Turnover Ratio

Trade Receivables Turnover Ratio (before collection)

= 8,00,000/1,60,000 = 5 times

Step 3: Impact of Collection

The Collection of ₹ 40,000 will reduce the closing trade receivables, changing the closing balance to:

2,00,000 – 40,000 = ₹ 1,60,000

Step 4: Revised Average Trade Receivables

Average Trade Receivables (after collection)

= 1,20,000 + 1,60,000}{2} = ₹ 1,40,000

Step 5: Revised Trade Receivables Turnover Ratio

Trade Receivables Turnover Ratio (after collection)

= 8,00,000/1,40,000 = approx 5.71 times

Impact:

The Trade Receivables Turnover Ratio increases from 5 times to approximately 5.71 times, indicating improved efficiency in the collection of receivables.

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