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Numerical Questions · Q16
Q.

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

Particulars2015-16 (₹)2016-17 (₹)
Trade receivables on Apr. 014,00,0005,00,000
Trade receivables on Mar. 315,60,000—
Stock in trade on Mar. 316,00,0009,00,000
Revenue from operations3,00,00024,00,000

Gross profit is 25% on cost of Revenue from operations. Calculate Inventory Turnover Ratio and Trade Receivables Turnover Ratio.

Sikkim CbseNCERTSubjective· 3mImportance★★★★★
89% · 56/63 Questions
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The official NCERT answer is — 2015-16: Inventory Turnover Ratio 2.67 times, Trade Receivables Turnover Ratio 4.41 times; 2016-17: Inventory Turnover Ratio 2.13 times, Trade Receivables Turnover Ratio 4.53 times. The question's own printed data is incomplete and internally inconsistent, so these key values cannot be reconstructed exactly from the figures given.

Formulae

  • Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
  • Trade Receivables Turnover Ratio = Revenue from Operations / Average Trade Receivables

Gross Profit is 25% on cost, so Cost of Revenue from Operations = Revenue / 1.25.

What the question gives

Item2015-162016-17
Trade receivables on Apr. 01₹4,00,000₹5,00,000
Trade receivables on Mar. 31₹5,60,000not given ("—")
Stock in trade on Mar. 31₹6,00,000₹9,00,000
Opening stocknot given₹6,00,000 (= previous close)
Revenue from operations₹3,00,000₹24,00,000

Why the data is defective

  • The opening stock for 2015-16 is missing, so average inventory for that year cannot be formed.
  • The closing trade receivables for 2016-17 are shown as "—", so average trade receivables for that year cannot be formed.
  • The 2015-16 revenue (₹3,00,000) is implausibly low relative to the stock held (₹6,00,000), which is why the year's turnover figures come out unrealistically slow. …

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