Question

Calculate Trade Payables Turnover Ratio and Average Debt payment Period from the following information:

	1st April, 2018 ₹	31st March, 2019 ₹
Sundry Creditors	1,50,000	4,50,000
Bills Payable	50,000	1,50,000

Total Purchases ₹ 21,00,000; Purchases Return ₹ 1,00,000; Cash Purchases ₹ 4,00,000.

Answer 1

$$\begin{gathered} \mathrm{Average}\mathrm{Trade}\mathrm{Payables}=\frac{\mathrm{Opening}\mathrm{Creditors}\&\mathrm{B}/\mathrm{P}+\mathrm{Closing}\mathrm{Creditors}\&\mathrm{B}/\mathrm{P}}{2} \\ =\frac{1,50,000+50,000+4,50,000+1,50,000}{2}=\mathrm{Rs}4,00,000 \\ \mathrm{Net}\mathrm{Credit}\mathrm{Purchases}=\mathrm{Total}\mathrm{Purchases}-\mathrm{Purchases}\mathrm{Return}-\mathrm{Cash}\mathrm{Purchases} \\ =21,00,000-1,00,000-4,00,000=\mathrm{Rs}16,00,000 \end{gathered}$$

$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{16,00,000}{4,00,000}=4\mathrm{times}$
$\mathrm{Average}\mathrm{Debt}\mathrm{Payment}\mathrm{Period}=\frac{12}{\mathrm{Trade}\mathrm{Payable}\mathrm{Turnover}\mathrm{Ratio}}=\frac{12}{4}=3\mathrm{months}$