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      Question

      Ninety- percent of Zen company limited total sales of

      6,00,000 is on credit. If the year end receivables turnover is 5, the average collection period (based on 365 days a year) and the year-end average receivables are respectively:
      A 365 days and 1,08,000 Correct Answer Incorrect Answer
      B 73 days and 1,20,000 Correct Answer Incorrect Answer
      C 73 days and 1,08,000 Correct Answer Incorrect Answer
      D 81 days and 1,08,000 Correct Answer Incorrect Answer
      E 365 days and 1,20,000 Correct Answer Incorrect Answer

      Solution

      Credit sales: 6,00,000 * 90%= 5,40,000 Receivables turnover ratio given is 5 times Receivables turnover ratio = Net credit sales / Average receivables ┬а540000/ Average receivables = 5 So, the average receivables will be = 108000 Average collection period = Total days in year / Average receivables turnover ratio 365/5 = 73 days

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