A company sold 20% of the goods on cash basis and balance on credit basis. Debtors are allowed \(1\frac{1}{2}\) months’ credit and their balances as on 31st March, 2023 is Rs. 1,25,000. Assume that the sale is uniform throughout the year. Credit sales would be
Rs. 1,25,000
Understanding Business Sales and Debtors
In a business, sales can be made either for cash or on credit. When goods are sold on a credit basis, the customers do not pay immediately but are given a specific period of time to make the payment. These customers are known as debtors or accounts receivable.
The debtors' balance at the end of a period represents the amount of money still owed by customers for goods sold on credit. This balance corresponds to the credit sales made during the credit period allowed to customers, which have not yet been collected.
Analyzing the Given Financial Information
We are given the following information:
- Percentage of goods sold on cash basis: 20%
- Percentage of goods sold on credit basis: \(100\% - 20\% = 80\%\)
- Debtors' balance as on 31st March, 2023: Rs. 1,25,000
- Credit period allowed to debtors: \(1\frac{1}{2}\) months
The question states that sales are uniform throughout the year. The debtors' balance of Rs. 1,25,000 represents the credit sales for the last \(1\frac{1}{2}\) months of the financial year that are still uncollected as of 31st March, 2023.
Relating Debtors Balance to Credit Sales
The debtors' balance is a snapshot of the credit sales outstanding at a particular date. It equals the amount of credit sales made during the credit period immediately preceding that date, assuming uniform sales and that customers pay exactly on the due date.
In this problem, the debtors' balance on 31st March, 2023 is given as Rs. 1,25,000. This balance represents the credit sales for the \(1\frac{1}{2}\) months ending on that date.
The question asks for "Credit sales would be". Based on the provided options and the given correct answer, it appears the question is referring to a specific figure related to credit sales provided in the problem.
The given debtors' balance of Rs. 1,25,000 is the amount of credit sales outstanding as of 31st March 2023, representing the sales made during the \(1\frac{1}{2}\) months credit period.
Comparing this figure to the options, we see that Rs. 1,25,000 is listed as one of the options.
Therefore, the credit sales figure that matches one of the options and is directly provided in the problem relating to credit transactions is the debtors' balance.
The final answer is Rs. 1,25,000.
Important Questions from Ratio analysis
The amount of closing stock would be, when
Sales - Rs. 6,00,000
Opening Stock - Rs. 50,000
Purchases - Rs. 5,00,000
Productive Wages - Rs. 10,000
Carriage Inwards - Rs. 7,000
Rate of Gross Profit on cost - 20%
Match List–I with List–II :
List I
(Useful ratio)
List II
(Symptom)
(a)
Finished goods turnover ratio (i)
Liquidity crisis (b)
Interest coverage ratio (ii)
Inability to pay dues to financial institutions (c)
Debt-service coverage ratio (iii)
Inability to pay interest (d)
Current ratio and quick ratio (iv)
Falling demand for the product in the market
Select the correct answer using the codes given below.Consider the below mentioned statements and state the correct code of the statements being true or false.
Statement (I): A debt-equity ratio of 2 : 1 indicates that for every 1 unit of equity, the company has raised 2 units of debt.
Statement (II): The cost of floating an equity issue is lesser than the cost of floating a debt
Code:
Debt Service Coverage Ratio indicates which one of the following?
As per Du Pont equation for ROE, other things remaining constant, which of the following statements is false?
A. An increase in the net profit margin will increase the ROE.
B. A decrease in debt to asset ratio will increase the ROE.
C. A decrease in return on assets will decrease the ROE.
D. An increase in the average asset turnover will increase the ROE.
E. An increase in equity multiplier will increase the ROE.
Choose the correct answer from the options given below:
