Page 112 - MA12

M.18 Management Accounting (Section B)—ISC XII

(b) ‘Provision for Doubtful Debts’ is not deducted from the Trade Receivables as the purpose is
to calculate the number of days for which sales are tied up in debtors and not to ascertain
the realisable value of trade receivables. If the ‘Provision for Doubtful Debts’ is deducted,
it would give an impression that a portion of Trade Receivables (to the extent of provision)
has already been collected.

(c)

Cost of Revenue from Operations
+ Operating Expenses
(i) Operating Ratio = ¥ 100
Revenue from Operations

` 13,20,000 + ` 2,20,000
= ¥ 100 = 70%.
` 22,00,000
Notes: Revenue from Operations = Cash Revenue from Operations
+ Credit Revenue from Operations

= ` 10,00,000 + ` 12,00,000 = ` 22,00,000
Gross Profit = 40% of ` 22,00,000 = ` 8,80,000
Cost of Revenue from Operations = Revenue from Operations – Gross Profit
= ` 22,00,000 – ` 8,80,000 = ` 13,20,000

Operating Expenses = 10% of ` 22,00,000 = ` 2,20,000.

Cost of Revenue from Operations
(ii) Inventory Turnover Ratio =
Average Inventory
` 13,20,000
Inventory Turnover Ratio = ` 1,50,000 (Opening) + ` 1,70,000 (Closing)

2
= 8.25 Times.

Shareholders’ Funds
(iii) Proprietary Ratio = ¥ 100
Total Assets

` 6,00,000 (Share Capital)
= ` 8,00,000 ¥ 100 = 75% .

Note: Total Assets = Current Assets + Non-Current Assets (Fixed Assets)
= ` 3,00,000 + ` 5,00,000 = ` 8,00,000.