Question
A company has annual credit sales of ₹36 crore. Its
trade receivables as on 31st March 2025 are ₹3.6 crore, of which ₹0.6 crore are more than 6 months old and considered doubtful. The company allows a credit period of 30 days to its customers. Based on this information, what is the Average Collection Period for good receivables only? Consider 360 days in a year.Solution
Step 1: Use only good trade receivables • Total receivables = ₹3.6 crore • Less: Doubtful receivables (>6 months old) = ₹0.6 crore • Good receivables = ₹3.0 crore Step 2: Formula – Average Collection Period Average Collection Period = (Average Receivables/ Annual Credit Sales) × 365 • Average Receivables = ₹3.0 crore • Annual Credit Sales = ₹36 crore =(3.0/ 36)×360=30 days
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