Page 67 - MA12

4.12 Management Accounting (Section B)—ISC XII

Illustration 8.
Calculate Opening Trade Payables and Closing Trade Payables from the following information:
(i) Cash Purchases 25% of Total Purchases.
(ii) Revenue from Operations ` 6,00,000.
(iii) Gross Profit Ratio 25%.
(iv) Opening Inventory ` 1,50,000, Closing Inventory ` 3,00,000.
(v) Trade Payables at the end were 3 times of the beginning.
(vi) Trade Payables Turnover Ratio 3 times.
Solution:
Cost of Revenue from Operations = Revenue from Operations – Gross Profit
= ` 6,00,000 – (25% of ` 6,00,000) = ` 4,50,000
Total Purchases = Cost of Revenue from Operations
+ Closing Inventory – Opening Inventory
= ` 4,50,000 + ` 3,00,000 – ` 1,50,000 = ` 6,00,000
Net Credit Purchases = Total Purchase – Cash Purchases
= ` 6,00,000 – (25% of ` 6,00,000) = ` 4,50,000
Net Credit Purchases
Trade Payables Turnover Ratio =
Average Trade Payables
` 4,50,000
3 =
Average Trade Payables
` 4,50,000
Average Trade Payables = = 1,50,000
`
3
Calculation of Opening and Closing Trade Payables:
Let the Opening Trade Paybles = x
Closing Trade Payables = 3x
x + 3x
` 1,50,000 (Average Trade Payables) =
2
` 3,00,000 = 4x
` 3,00,000
x = = ` 75,000 (Opening Trade Payables)
4
Closing Trade Payables = 3x = ` 75,000 × 3 = ` 2,25,000.

Illustration 9.
Following is the Statement of Profit and Loss of Exe Ltd., calculate Inventory Turnover Ratio:

STATEMENT OF PROFIT AND LOSS
Particulars Note No. `
I. Income
Revenue from Operations 1 2,00,000
II. Expenses
Purchases of Stock-in-Trade 1,30,000
Change in Inventories of Stock-in-Trade 2 20,000
Total 1,50,000
III. Net Profit (I – II) 50,000