Question

A company has a gross profit ratio of 40%. The trade receivables collection period for the...

A company has a gross profit ratio of 40%. The trade receivables collection period for the company has been calculated at 53 days. If the actual gross profit earned was £480,000, what were the trade receivables?

Select one:

a. £174,247

b. £69,968

c. £116,164

d. £104,548

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Homework Answers

Answer #1

Answer:-

(i) Sales Calculation :-

Gross Profit = £ 480,000

Gross Profit Ratio = 40%

Gross Profit Ratio = Gross Profit / Sales * 100

40 = 480000/Sales * 100

Sales = 480000/40 * 100

Sales = £ 1,200,000

(ii) Trade Receivables :-

Trade Receivables Collection Period = 53 days

Sales = £1,200,000

Trade Receivables Collection Period = Trade Receivables/Sales * 365

53 = Trade Receivables / 1200000 * 365

53*1200000/365 = Trade Receivables

Hence Trade Receivables = £ 174,247

Answer: a. £ 174,247

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