CA Inter P6 · Chapter 9 · Question 9 of 9
In estimating working capital, a company expects annual cost of sales (excluding depreciation) of ₹ 48,00,000 and allows customers 1.5 months' credit. Receivables are to be valued at cost. The estimated investment in receivables is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) ₹ 6,00,000
Explanation
Receivables at cost = annual cost of sales x credit period / 12 = ₹ 48,00,000 x 1.5 / 12 = ₹ 6,00,000. Valuing at cost (excluding depreciation, which is a non-cash item) measures the funds actually tied up, since the profit element is not a cash investment. The figure ₹ 4,00,000 covers only one month.
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