Question

Calculate Trade Payables Turnover Ratio for the year 2018-19 in each of the alternative cases:
Case 1 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000; Purchases Return ₹ 60,000; Cash Purchases ₹ 90,000.
Case 2 : Opening Trade Payables ₹ 15,000; Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 3 : Closing Trade Payables ₹ 45,000; Net Purchases ₹ 3,60,000.
Case 4 : Closing Trade Payables (including ₹ 25,000 due to a supplier of machinery) ₹ 55,000; Net Credit Purchases ₹ 3,60,000.

Answer 1

Case 1

Net Credit Purchases = Net Purchases − Cash Purchases

= 3,60,000 − 90,000 = 2,70,000
$$\begin{gathered} \mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}} \\ =\frac{2,70,000}{45,000}=6\mathrm{times} \end{gathered}$$

Case 2

Net Purchases = 3,60,000
$$\begin{gathered} \mathrm{Average}\mathrm{Trade}\mathrm{Payables}=\frac{\mathrm{Opening}\mathrm{Trade}\mathrm{Payables}+\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}}{2} \\ =\frac{15,000+45,000}{2}=30,000 \end{gathered}$$
$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{30,000}=12\mathrm{times}$

Case 3

$\mathrm{Trade}\mathrm{Payable}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Closing}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{45,000}=8\mathrm{times}$

Case 4

Net Credit Payables for Goods = Trade Payables − Creditors for Machinery

= 55,000 − 25,000 = 30,000

$\mathrm{Trade}\mathrm{Payables}\mathrm{Turnover}\mathrm{Ratio}=\frac{\mathrm{Net}\mathrm{Credit}\mathrm{Purchases}}{\mathrm{Average}\mathrm{Trade}\mathrm{Payables}}=\frac{3,60,000}{30,000}=12\mathrm{times}$