Question

You are able to collect the following information about company for two years:

$$\begin{array}{ccc}\text{Items}& 2004& 2005\\ \text{Books Debts on April 1}& 4,00,000& 5,00,000\\ \text{Books Debts on March 30}& & 5,60,000\\ \text{Stock in trade on March 31}& 6,00,000& 9,00,000\\ \text{Sale}\left(\text{at gross profit of}25\%\right)& 3,00,000& 24,00,000\end{array}$$

Calculate stock turnover Rratio and debtor turnover ratio if in the year 2004 stock in trade increased by Rs. 2,00,000.

Answer 1

Stock Turnover Ratio
$=\frac{CostofGoodsSold}{AverageStock}$

Cost of Goods Sold
= Sales – Gross Profit

Gross Profit = 25 % of sales
$=\frac{25}{100}\times Rs.24,00,000=Rs.6,00,000$

Cost of goods Sold
$=Rs.24,00,000–Rs.6,00,000=Rs.18,00,000$

Average Stock
= $\frac{OpeningStock+ClosingStock}{2}=\frac{Rs.6,00,000+Rs.9,00,000}{2}=\frac{Rs.15,00,000}{2}=Rs.7,50,000$

Stock Turnover Ratio
$=\frac{Rs.18,00,000}{Rs.7,50,000}=2.4\text{times}$

Debtors Turnover Ratio
$=\frac{NetCreditSales}{AverageDebtors}$

Average Debtors
= $\frac{\text{Opening Debtors ~+~ Closing Debtors}}{2}$
$=\frac{Rs.5,00,000+Rs.5,60,000}{2}$
$=\frac{Rs.10,60,000}{2}=Rs.5,30,000$

Debtors Turnover Ratio
$=\frac{Rs.24,00,000}{Rs.5,30,000}=4.53$ times