Following information relate to a concern: Debtors Velocity 3 months Credits Velocity 2 months Stock Turnover Ratio 1.5 Gross Profit Ratio 25% Bills…

(i) Determination of Sales and Cost of goods sold: Gross Profit Ratio = (Gross Profit / Sales) × 100 Or, 25 / 100 = 4,00,000 / Sales Or, Sales = 4,00,000 / 25% = 16,00,000 Cost of Goods Sold = Sales - Gross Profit = 16,00,000 -4,00,000 = 12,00,000 (ii) Determination of Sundry Debtors: Debtors velocity is 3 months or Debtors' collection period is 3 months, So, Debtors' turnover ratio = 12 months / 3 months = 4 Debtors' turnover ratio = Credit Sales / Average Accounts Receivable 16,00,000 / (Bills Receivable + Sundry Debtors) = 4 Or, Sundry Debtors + Bills receivable = 4,00,000 Sundry Debtors = 4,00,000 - 25,000 = 3,75,000 (iii) Determination of Sundry Creditors: Creditors velocity of 2 months or credit payment period is 2 months. So, Creditors' turnover ratio = 12 months / 2 months = 6 Creditors turnover ratio = Credit Purchases / Average Accounts Payables 12,10,000 / (Sundry Creditors + Bills Payables) = 6 So, Sundry Creditors + Bills Payable = 2,01,667 Or, Sundry Creditors +10,000 = 2,01,667 Or, Sundry Creditors = 2,01,667 - 10,000 = 1,91,667 (iv) Closing Stock Stock Turnover Ratio = Cost of Goods Sold / Average Stock 1.5 = 12,00,000 / Average Stock So, Average Stock = 8,00,000 Now Average Stock = (Opening Stock + Closing Stock) / 2 Or (Opening Stock + (Opening Stock +10,000)) / 2 = 8,00,000 Or, Opening Stock = 7,95,000 So, Closing Stock = 7,95,000 +10,000 = 8,05,000 (v) Calculation of Fixed Assets Fixed Assets Turnover Ratio = Cost of Goods Sold / Fixed Assets 4 = 12,00,000 / Fixed Assets Or, Fixed Asset = 3,00,000 Workings: Calculation of Credit purchases: Cost of goods sold = Opening stock + Purchases – Closing stock 12,00,000 = 7,95,000 + Purchases - 8,05,000 12,00,000 +10,000 = Purchases 12,10,000 = Purchases (credit). Assumption: (i) All sales are credit sales (ii) All purchases are credit purchase (iii) Stock Turnover Ratio and Fixed Asset Turnover Ratio may be calculated either on Sales or on Cost of Goods Sold.