- February 14, 2016 at 9:20 pm #300453
the following information has been taken or calculated from Fowlers financial statements for the year ended 30 September 2014.
Fowlers cash cycle at 30 September 2014 is 70 days
its inventory turnover is six times
Year end trade payables are $230,000
Credit purchases for the year were $2m
Cost of sales for the year was $1.8m
What is fowlers trade receivables collection period as at 30 September 2014?
A, 106, B, 89, C, 56 D, 51February 15, 2016 at 8:19 am #300483
Where’s this one from? It’s not one of mine, that’s for sure!
Wherever it’s from, presumably the source also gives you an answer. Does it not also give an explanation?February 15, 2016 at 5:57 pm #300606
Thanks for getting back to me, to my surprise this question was in the pilot paper for F7 so an ACCA link perhaps.
Further to my surprise as this was one of two of the MCQ questions I got wrong the answer was D 51 with the explanation as follows:-
Inventory turnover is 6 so 365/6 =61
The cash cycle of 70 and payables cycle of 42 days
Thus (70-61+42)= 51
A little confusing send with both the terminology and answer if honest…
ThanksFebruary 15, 2016 at 7:27 pm #300618
Payables days is 42 days (230,000 x 365 / 2,000,000)
Inventory turnover is simply the average number of days from buying inventory to selling it
And receivables days is the average number of days from selling inventory until you receive the money
And finally, the cash cycle is the difference between the aggregate number of days taken from buying inventory, converting it into sales and collecting the money (ie days held in inventory + days held as receivables) compared with the days taken on average to pay suppliers
In numbers, that’s 70 = 61 + Receivables days – 42
Rearranging that gives us receivables days of 51
Better?February 15, 2016 at 8:26 pm #300622
Ah yes, I see it now. The cash cycle is effectively the operating cycle.
Inventory is 61
payables is (42)
receivables days ?
operating cycle is 70
Hence the missing figure is 51….
So silly, typical ACCA keeping you on your toes, forcing you to really READ the question.February 16, 2016 at 8:50 am #300650
That’s an invaluable lesson learned, then!
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