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M.460 An Aid to Accountancy—CBSE XII

` 3,00,000
Average Trade Receivables = = ` 75,000
4
Average Trade Receivables
Opening Trade Receivables + Closing Trade Receivables
= 2
Let the Opening Trade Receivables = y;
Closing Trade Receivables = y + ` 10,000
y + y + ` 10,000
` 75,000 =
2
y + y + ` 10,000 = ` 1,50,000
2y = ` 1,50,000 – ` 10,000
` 1,40,000
y = = ` 70,000 (Opening Trade Receivables)
2
Closing Trade Receivables = ` 70,000 + ` 10,000 = ` 80,000.

(b) The objective of computing Trade Receivables Turnover Ratio is to determine the
efficiency with which the trade receivables are managed and collected.

Or
(a) Trade Receivables Turnover Ratio
Credit Revenue from Operations (Net Credit Sales)
=
Average Trade Receivables or Debtors
` 30,000
= = 1 Time.
Working Note: ` 30,000
Credit Revenue from Operations, i.e., Net Credit Sales
= Total Net Sales – Net Cash Sales
= ` 1,50,000 – ` 1,20,000* = ` 30,000.
Opening Debtors = Closing Debtors – Excess of Closing Debtors over Opening Debtors
= ` 40,000 – ` 20,000 = ` 20,000.

OpeningDebtors + ClosingDebtors
Average Debtors =
2
` 20,000+ 40,000
`
= = ` 30,000.
2
x x 5x
x
*Let Net Cash Sales be x, Net Credit Sales = 25% of x or , Total Net Sales = + =
4 4 4
x (Net Cash Sales) = ` 1,50,000 × 4/5 = ` 1,20,000.
Net Credit Sales = ` 1,20,000 × 25/100 = ` 30,000.

(b) The objective of computing Proprietary Ratio is to measure the proportion of Total
Assets financed by the Proprietor’s Funds.