QUESTION :RATIO ANALYSISThe following are the ratios relating to the activities of National...

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QUESTION :RATIO ANALYSISThe following are the ratios relating to the activities of National Traders:Debtors velocity 3 MonthsStock velocity 8 MonthsCreditors velocity 2 MonthsGross profit ratio 25%Gross profit for the current year ended 31st December amounts to $4,00,000.Closing stock of the year is $10,000 above the opening stock.Bills receivable amount to $25,000 and bills payable to $10,000 Find 0ut:a)Salesb)Sundry debtorsc)Closing stockd)Sundry creditors.
	
Document Preview: QUESTION :RATIO ANALYSISThe following are the ratios relating to the activities of National Traders:		Debtors velocity		3 Months		Stock velocity			8 Months		Creditors velocity		2 Months		Gross profit ratio		25%Gross profit for the current year ended 31st December amounts to $4,00,000.Closing stock of the year is $10,000 above the opening stock.Bills receivable amount to $25,000 and bills payable to $10,000 Find 0ut:SalesSundry debtorsClosing stockSundry creditors.

David · Accepted Answer

SOLUTION :
A)Determination of sales:
Gross profit ratio = Gross profit/Sales x 100
			25 = $4,00,000/Sales x 100
			Sales = $4,00,00/25 x 100
				 = $1,600,000
B)Determination of sundry debtors :
  Debtors velocity is 3 months.In other words debtors collection period is 3 months,or debtors turnover ratio is 4.Assuming all sales to be credit sales and debtors turnover being calculated on the basis of the year end figures,debtors would be determined as follows :
Debtors turnover ratio = Credit sales/Closing debtors + Bills receivable
Or Closing debtors + Bills receivable = Credit sales/Debtors turnover
                                      = $1,600,

QUESTION :RATIO ANALYSIS The following are the ratios relating to the activities of National Traders: Debtors velocity 3 Months Stock velocity 8 Months Creditors velocity 2 Months Gross profit ratio...

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