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The total sales (all credit) of a firm are Rs. 6. 40,000. It has a gross profit margin 15 per cent and a current ratio of 2.5. The firm's current liabilities are Rs.96.000; ventories Rs. 48,000 and cash Rs. 16,000. (a) Determine the average inventory to be carried the firm, if an inventory tumover of 5 times is expected? (Assume a 360-day year). (b) termine the average collection period if the opening balance of debtors is intended to be of . 80,000? (Assume a 360-day year). Inventory turnover - Average inventory Cost of goods sold nce gross profit margin is 15 per cent, the cost of goods sold should be 85 per cent of the Les. us, Cost of goods sold =0.85 x Rs. 640000 = Rs. 544000. Rs. 544000 Av. inventory Rs. 544000 Average inventory 5 = Rs. 1, 08.800 Average collection period: Average debtors x 360 Credit sales werage debtors = (op. debtors + cl. Debtors)/2 osing balance of debtors is found as follows: Current assets (2.5 of current liabilities) Rs. 2. 40,000 Less: Inventories Rs. 48,000 Cash 16,000 64,000 Debtors Ks. 1, 76,000 Average debtors= (Rs. 1, 76,000 + Rs. 80,000)/2 = Rs. 1, 28.000 Average collection period = Rs. 640000 * 360 = 72 days oblem 3. The following figures relate to the trading activities of Hind Traders Limited for e year ended 30 June, 2004: ble 3. Hind Traders Limited 15,00,000 Administrative expenses chases 9,66,750 Salaries 81,000 ening stock 2.28,750 Rent 8.100 sing stock 2.95,500 Stationery, postage, etc. 7.500 es returns 60,000 Depreciation ling and distribution expenses Other charges 49.500 aries 45.900 Provision for taxation 1.20,000 t18 Rs. Rs. es 27.900 vertising 14,100 Non-operating income avelling 6,000 Dividend on shares 27,000 n-operating expenses Profit on sale of shares 9,000 ss on sale of assets 12.000 u are required to (1) rearrange the above figures in a form suitable for analysis, and (2) ow separately the following ratios: (1) gross profit ratio; (ii) operating ratio: (i) stock nover ratio

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