The credit sales of a firm is ₹6,40,000. It has a gross profit margin of 15% and a current ratio of 2.5. The firm's current liabilities are ₹96,000; inventories ₹48,000 and cash ₹16,000. What is the average collection pe

(b) What is the average collection period? Average collection period = Debtors / (Credit sales / 360) First, calculate Debtors (Accounts Receivables): Current Ratio = Current Assets / Current Liabilities Given: Current Ratio = 2.5, Current Liabilities = ₹96,000 Current Assets = 2.5 * ₹96,000 = ₹2,40,000 Current Assets = Inventories + Cash + Debtors ₹2,40,000 = ₹48,000 (Inventories) + ₹16,000 (Cash) + Debtors ₹2,40,000 = ₹64,000 + Debtors Debtors = ₹2,40,000 - ₹64,000 = ₹1,76,000 Now, calculate Average Collection Period: Average collection period = ₹1,76,000 / (₹6,40,000 / 360) Average collection period = ₹1,76,000 / ₹1,777.78 per day Average collection period = 99 days (approximately)