Ratio analysis - DTR Solved Exercises

MANAGEMENT ACCOUNTING
RATIO ANALYSIS
BY:
SMT.UMA MINAJIGI REUR
HEAD, DEPT. OF COMMERCE & MANAGEMENT
SMT. V G DEGREE COLLEGE FOR WOMEN, KALABURAGI

MANAGEMENT ACCOUNTING
RATIO ANALYSIS
TURNOVER RATIOS – 2
DEBTORS TURNOVER RATIO
SOLVED PROBLESM

Classification of Accounting Ratio
Types of ratios are given below:
1. Liquidity Ratios
2. Leverage Ratio
3. Turnover Ratio
4. Profitability Ratio

Turnover Ratios or Activity Ratios or Performance Ratios
Turnover ratios are used to determine how efficiently the financial assets and
liabilities of an organization have been used for the purpose of generating revenues.
These ratios measure the operating efficiency of an enterprise.
The types of Turnover ratios are: –
1. Inventory Turnover Ratio or Stock Turnover Ratio.
2. Debtors Turnover Ratio.
3. Creditors Turnover Ratio.
4. Cash Turnover Ratio.
5. Working Capital Turnover Ratio.
6. Fixed Assets Turnover Ratio.
7. Capital Turnover Ratio or Sales to Net Worth Ratio.

The Debtors Turnover Ratio also called as Receivables Turnover Ratio or Debtors
velocity shows how quickly the credit sales are converted into the cash. This ratio
measures the efficiency of a firm in managing and collecting the credit issued to the
customers.
It is calculated by the following formula:
De𝐛𝐭𝐨𝐫𝐬 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨 =
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬

Net Credit Sales = Total Sales – Cash Sales – Sales Returns
Calculation of Average Debtors :
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 =
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬
𝟐
Interpretation:
Standard credit period is 30 days
If the credit period is more than 30 days it indicates that the concern is not
efficient.
If the credit period is less than 30 days it indicates that the concern is efficient.

Calculation of Average Debtors (if B/R is given):
𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 + 𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐁/𝐑 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐁/𝑹
𝟐

AVERAGE COLLECTION PERIOD
The Average Collection Period, also called as Debt Collection Period, shows how
much time business takes to realize the credit sales. Simply, how long will it take to
recover payments from the debtors against the credit sales?
It is calculated by dividing the number of months or days or weeks by the debtors
turnover ratio.
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 𝐌𝐨𝐧𝐭𝐡𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐦𝐨𝐧𝐭𝐡𝐬
𝐃𝐞𝐛𝐭𝐨𝐫𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨

A𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 𝐖𝐞𝐞𝐤𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐰𝐞𝐞𝐤𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
A𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 𝐃𝐚𝐲𝐬 =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫

A𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐍𝐞𝐭 𝐜𝐫𝐞𝐝𝐢𝐭 𝐬𝐚𝐥𝐞𝐬 𝐩𝐞𝐫 𝐝𝐚𝐲
𝐃𝐞𝐛𝐭𝐨𝐫𝐬
𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬
* No. of days in a year
𝟐

Section B 19:
From the following information calculate Debtors turnover ratio (DTR) and Average
collection period (ACP).
Total Sales Rs.3,80,000, Cash sales Rs. 2,40,000, Opening Debtors Rs. 12,000,
Closing Debtors Rs. 16,800. Opening balance of Bills receivable Rs. 9,600 and
Closing balance of Bills receivable Rs.14,400.
Solution :
Net Credit Sales = 3,80,000 – 2,40,000 – Nil
Net Credit Sales = 1,44,000

𝟐
𝟏𝟐, 𝟎𝟎𝟎 + 𝟗, 𝟔𝟎𝟎 + 𝟏𝟔, 𝟖𝟎𝟎 + 𝟏𝟒, 𝟒𝟎𝟎
𝟐
𝟐𝟏,𝟔𝟎𝟎+𝟑𝟏,𝟐𝟎𝟎
𝟐
= 26,400
𝟏,𝟒𝟒,𝟎𝟎𝟎
𝟐𝟔,𝟒𝟎𝟎
= 5.45 times
Total Sales Rs.3,80,000, Cash sales Rs. 2,40,000, Opening Debtors Rs. 12,000, Closing Debtors Rs. 16,800. Opening
balance of Bills receivable Rs. 9,600 and Closing balance of Bills receivable Rs.14,400.

𝟏𝟐
𝟓.𝟒𝟓
= 2.2 months
𝟓𝟐
𝟓.𝟒𝟓
= 9.54 weeks
𝟑𝟔𝟓
𝟓.𝟒𝟓
= 𝟔𝟕 𝐝𝐚𝐲𝐬

Section B 21:
Total Sales Rs.20,00,000, Cash sales Rs. 3,00,000, Returns Inwards Rs.1,00,000,
Opening Debtors & B/R Rs. 2,25,000, Closing Debtors & B/R Rs. 1,75,000.
Solution :
Net Credit Sales = Total Sales – Cash Sales –Returns Inwards
Net Credit Sales = 20,00,000 – 3,00,000 – 1,00,000

𝟐
𝟐, 𝟐𝟓, 𝟎𝟎𝟎 + 𝟏, 𝟕𝟓, 𝟎𝟎𝟎
𝟐
𝟒,𝟎𝟎,𝟎𝟎𝟎
𝟐
= 2,00,000
𝟏𝟔,𝟎𝟎,𝟎𝟎𝟎
𝟐,𝟎𝟎,𝟎𝟎𝟎
= 8 times
Total Sales Rs.20,00,000, Cash sales Rs. 3,00,000, Returns Inwards Rs.1,00,000, Opening
Debtors & B/R Rs. 2,25,000, Closing Debtors & B/R Rs. 1,75,000.

𝟏𝟐
𝟖
= 1.5 months
𝟓𝟐
𝟖
= 6.5 weeks
𝟑𝟔𝟓
𝟖
= 𝟒𝟔 𝐝𝐚𝐲𝐬

Section B 22:
Total Sales Rs.14,00,000, Cash sales Rs. 4,00,000, Returns Inwards Rs.50,000,
Debtors on 31-12-2017 Rs. 1,00,000, B/R on 31-12-2017 Rs. 60,000.
Solution 2:
Net Credit Sales = 14,00,000 – 4,00,000 – 50,000

𝟐
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 = 𝟏, 𝟎𝟎, 𝟎𝟎𝟎 + 𝟔𝟎, 𝟎𝟎𝟎= 1,60,000
Total Sales Rs.14,00,000, Cash sales Rs. 4,00,000, Returns Inwards Rs.50,000, Debtors on 31-12-2017 Rs. 1,00,000, B/R on 31-
12-2017 Rs. 60,000.
𝟗,𝟓𝟎,𝟎𝟎𝟎
𝟏,𝟔𝟎,𝟎𝟎𝟎
= 5.93 times
As only closing debtors is given, so only closing debtors & B/R will be considered, Debtors on 31-12-2017 Rs.
1,00,000, B/R on 31-12-2017 Rs. 60,000.
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 = 𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑫𝒆𝒃𝒕𝒐𝒓𝒔 + 𝑩/𝑹

𝟏𝟐
𝟓.𝟗𝟑
= 2.02 months
𝟓𝟐
𝟓.𝟗𝟑
= 8.76 weeks
𝟑𝟔𝟓
𝟓.𝟗𝟑
= 𝟔𝟐 𝐝𝐚𝐲𝐬

Section B 24:
Gross Sales Rs.2,00,000,
Return inwards Rs.12,000,
Book Debts on 31-3-2017 Rs.20,000,
B/R as on 31-3-2017 Rs.4000,
Provision for bad debts as on 31-3-2017 Rs. 1500,
Debtors as on 31-3-2017 Rs.12,000,
Gross sales on credit Rs.1,56,000

Section B 24:
Gross Sales Rs.2,00,000, Return inwards Rs.12,000, Book Debts on 31-3-2017
Rs.20,000, B/R as on 31-3-2017 Rs.4000, Provision for bad debts as on 31-3-2017
Rs. 1500, Debtors as on 31-3-2017 Rs.12,000, Gross sales on credit Rs.1,56,000
Solution 2:

𝐎𝐩𝐞𝐧𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 + 𝐁/𝐑 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 + 𝐁/𝐑
𝟐
Gross Sales Rs.2,00,000, Return inwards Rs.12,000, Book Debts on 31-3-2017 Rs.20,000, B/R as on 31-3-2017 Rs.4000,
Provision for bad debts as on 31-3-2017 Rs. 1500, Debtors as on 31-3-2017 Rs.12,000, Gross sales on credit Rs.1,56,000
𝟏,𝟒𝟒,𝟎𝟎𝟎
𝟐𝟐,𝟓𝟎𝟎
= 6.93 times
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 = 𝑫𝒆𝒃𝒕𝒐𝒓𝒔 + 𝑩𝑹 − 𝑷𝑩𝑫
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭𝐨𝐫𝐬 = 𝟏𝟐𝟎𝟎𝟎 + 𝟒𝟎𝟎𝟎 − 𝟏𝟓𝟎𝟎 = 𝟐𝟐, 𝟓𝟎𝟎

𝟏𝟐
𝟔.𝟗𝟑
= 1.73 months
𝟓𝟐
𝟔.𝟗𝟑
= 7.5 weeks
𝟑𝟔𝟓
𝟔.𝟗𝟑
= 𝟓𝟐. 𝟔𝟕 𝐝𝐚𝐲𝐬

THANK YOU
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