Understanding Cash Paid for Inventory

The question asks us to calculate the amount of cash paid for inventory during the period. To do this, we need to consider the credit purchases made during the period and the changes in the amount owed to suppliers, represented by trade payables.

Analyzing the Given Information

We are provided with the following particulars:

The inventory figures (beginning and end) help determine the Cost of Goods Sold or purchases adjustments, but the cash paid for inventory is primarily related to the payments made to suppliers for credit purchases. This is where the Trade Payables information becomes crucial.

Calculating Cash Paid to Trade Payables

Trade Payables represent the amount owed to creditors for goods purchased on credit. The movement in the Trade Payables account can be used to find the cash paid to these creditors during the period. The relationship is as follows:

Beginning Trade Payables + Credit Purchases - Cash Paid to Trade Payables = Ending Trade Payables

We can rearrange this formula to find the Cash Paid to Trade Payables:

Cash Paid to Trade Payables = Beginning Trade Payables + Credit Purchases - Ending Trade Payables

Step-by-Step Calculation

Let's plug the given values into the formula:

• Beginning Trade Payables = ₹14,000
• Credit Purchases = ₹1,60,000
• Ending Trade Payables = ₹14,500

Cash Paid to Trade Payables $$= \text{₹}14,000 + \text{₹}1,60,000 - \text{₹}14,500$$

First, add the beginning trade payables and credit purchases:

$$ \text{₹}14,000 + \text{₹}1,60,000 = \text{₹}1,74,000 $$

This ₹1,74,000 represents the total amount that was potentially payable to suppliers during the period (amount owed at the start plus new credit purchases). Now, subtract the amount still owed at the end of the period:

$$ \text{₹}1,74,000 - \text{₹}14,500 = \text{₹}1,59,500 $$

Therefore, the cash paid to trade payables during the period is ₹1,59,500.

Assuming all cash payments related to inventory purchases are payments made to trade payables for credit purchases, the cash paid for inventory is ₹1,59,500.

Conclusion on Cash Paid for Inventory

Based on the calculation using the trade payables information, the cash paid for inventory during the period is ₹1,59,500.

Revision Table: Key Terms

Additional Information: Cash Flow Impact

Calculating cash paid for inventory is important for understanding a company's cash flow from operating activities. The change in trade payables impacts the cash flow. If trade payables increase (ending > beginning), it means the company has paid less cash than its credit purchases, resulting in a higher cash flow from operations (relative to purchases). If trade payables decrease (ending < beginning), the company has paid more cash than its credit purchases, resulting in a lower cash flow from operations. In this specific case, trade payables increased from ₹14,000 to ₹14,500. This small increase of ₹500 means that ₹500 less cash was paid compared to the credit purchases amount (₹1,60,000 - ₹1,59,500 = ₹500).