Page 72 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 4: Ratio Analysis

To find out the average collection period, first the debtors’ turnover ratio has to be Notes

computed
Netcreditsales
Debtor’s turnover ratio =
Bills receivable + Debtors

Net credit sales = Gross sales - cash sales - sales return
= `2,00,000 - `40,000 - `14,000 = `1,46,000

,
`146000
,
Debtor turnover ratio =
,
`4 000 + `18 000
,
= 6.64 times
Debtor’s velocity = 365 days = 365 days
.
Debtors turnover ratio 664 times
= 55 days
2. Determine the value of the closing stock from the following details:
Sales `8,00,000
Gross profit 10% on sales

Stock velocity 4 times

Closing stock was ` 10,000 in excess of opening stock.

To find out the closing stock, stock turnover ratio is to be taken for consideration.
Cost of goods sold

Stock turnover ratio =

Average stock
Cost of goods sold = Sales-Gross profi t
= `8,00,000-10% on `8,00,000
= `8,00,000-80,000 = `7,20,000
,
,
4 times = `7 20 000

Average stock
Average stock = `1,80,000
Opening stock + Closing stock
= `1,80,000 ...(1)
2
Now, the closing stock value only is to be computed which is excess of ` 10,000 over
opening stock.

Closing stock = Opening stock + `10,000 ...(2)
Substitute the found value of closing stock (2) in the equation (1)
Opening stock + Opening stock + `10,000 = `3,60,000
2 Opening stock = `3,50,000
,
`350000
,
Opening stock = = `1,75,000
2
Closing stock = `1,75,000 + `10,000 = `1,85,000

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