Lesson eLearning

For a manufacturing firm, net credit sales for the year are Rs.12,00,000 and the average accounts receivable is Rs.1,00,000. Net profit for the year is Rs.1,20,000 and net sales are Rs.15,00,000. (a) Find the receivables turnover ratio. (b) Determine the average collection period in days. (c) Compute the net profit ratio as a percentage.

hard 5 marks Class 12 · Accountancy · Accounting Ratios
Answer
Receivables turnover = 12 times; Average collection period ≈ 30.4 days; Net profit ratio = 8%

The correct answer is Receivables turnover = 12 times; Average collection period ≈ 30.4 days; Net profit ratio = 8% — Summarize the three results.

Step-by-step solution

  1. Receivables turnover = Net credit sales ÷ Average receivables.
  2. Plug values: times.
  3. Average collection period = 365 days ÷ Receivables turnover.
  4. Calculate: days, round to days.
  5. Net profit ratio = Net profit ÷ Net sales.
  6. Substitute: .
  7. Convert to percentage: .
  8. Summarize the three results.
Common mistake: Using total sales instead of credit sales for receivables turnover and forgetting to convert the turnover into days

Concept tested: Receivables turnover, collection period, net profit ratio

Published · How this solution was prepared and checked

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