Credit Purchases ₹12,00,000; Opening Creditors ₹2,00,000; Closing Creditors ₹1,00,000. Trade Payables Turnover Ratio will be :a.4 timesb.6 timesc.12 timesd.8 time
Question
Credit Purchases ₹12,00,000; Opening Creditors ₹2,00,000; Closing Creditors ₹1,00,000. Trade Payables Turnover Ratio will be :a.4 timesb.6 timesc.12 timesd.8 time
Solution
To calculate the Trade Payables Turnover Ratio, we need to use the formula:
Trade Payables Turnover Ratio = Credit Purchases / Average Trade Payables
First, let's calculate the Average Trade Payables:
Average Trade Payables = (Opening Creditors + Closing Creditors) / 2
Given: Credit Purchases = ₹12,00,000 Opening Creditors = ₹2,00,000 Closing Creditors = ₹1,00,000
Average Trade Payables = (2,00,000 + 1,00,000) / 2 = ₹1,50,000
Now, let's calculate the Trade Payables Turnover Ratio:
Trade Payables Turnover Ratio = Credit Purchases / Average Trade Payables = 12,00,000 / 1,50,000 = 8
Therefore, the Trade Payables Turnover Ratio is 8 times.
So, the correct answer is d. 8 times.
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