Page 71 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes Solution:

To find out the volume of purchases, the formula of cost of goods sold should be taken into

consideration.
Cost of goods sold = Opening Stock + Purchases – Closing Stock
= 10,000 + Purchases – 20,000

Cost of goods sold = Sales – Gross Profi t
= 1,00,000 – 10% on 1,00,000 = 90,000
The next step is to apply the found value in the early equation
Purchases = 90,000 – 10,000 + 20,000 = 1,00,000

To find out the value creditors, the creditor velocity and creditors turnover ratio
Creditors Velocity = 365 days
Creditors Turnover Ratio

Creditors Turnover Ratio = Credit Purchases
Bills Payable + Sundry Creditors

,
1 00 000
,
=
16 000 + Sundry Creditors
,
The next step is to find out the sundry creditors, the reversal process to be adopted

73 days = 365 days
Creditors Turnover Ratio
365 days
Creditors Turnover Ratio = = 5 times
73 days

The next step is to substitute the found value in the equation of creditors turnover ratio
,
,
16,000+ Sundry creditors = `1 00 000
5
Sundry Creditors = 20,000 – 16,000 = 4,000
Solved Problems for Practice

1. Sundaram & Co. sells goods on cash as well as credit basis. The following particulars are
extracted from the books of accounts for the calendar year 2005:

Particulars `
Total Gross sales 2,00,000
Cash sales (included in above) 40,000
Sales returns 14,000
Total Debtors 18,000
Bills receivable 4,000
Provision for doubtful debts 2,000
Total creditors 20,000
Calculate the average collection period.

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