Question

Calculate Trade Payables Turnover Ratio from the following information :

$\begin{array}{cc}& \text{Rs.}\\ \text{Credit Purchases during the year}& 6,20,000\\ \text{Purchase Returns (Out of credit purchase)}& 20,000\\ \text{Opening Creditors}& 1,00,000\\ \text{Closing Creditors}& \text{1,40,000}\\ \text{Opening Bills Payable}& \text{25,000}\\ \text{Closing Bills Payable}& \text{35,000}\end{array}$

Answer 1

Trade Payables Turnover Ratio = $\frac{\text{Net Credit Purchases}}{\text{Average Creditors + Average B/P}}=......$ times

Net Credit Purchases = Rs. 6,20,000 - Rs. 20,000 = Rs. 6,00,000

Average Creditors & B/P $=\frac{Rs.1,00,000+Rs.1,40,000+Rs.25,000+Rs.35,000}{2}$

= Rs. 1,50,000

Trade Payables Turnover Ratio $=\frac{Rs.6,00,000}{Rs.1,50,000}=4times$.

Average Payment Period =$\frac{365}{4times}=91.25$ days or 92 days

As stated earlier, any fraction of a day would, in practice, mean that the payment will be made next day. Hence, in the above case 91.25 days would imply 92 days.