Financial ManagementQuestion 5503 of 217
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6. Inventory and Receivables would be:

Options

A` 20 Lakh and ` 20 Lakh
B` 10 Lakh and ` 10 Lakh
C` 10 Lakh and ` 20 Lakh
D` 20 Lakh and ` 10 Lakh
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Correct Answer

✅ Option A — ` 20 Lakh and ` 20 Lakh

All Options:

  • A` 20 Lakh and ` 20 Lakh ✓
  • B` 10 Lakh and ` 10 Lakh
  • C` 10 Lakh and ` 20 Lakh
  • D` 20 Lakh and ` 10 Lakh

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Detailed Solution & Explanation

To find the values of Inventory and Receivables for VP Ltd., we perform calculations from the provided case information:

**1. Cost of Goods Sold (COGS) Calculation:**
* Sales = Rs. 150 Lakh\displaystyle \text{Rs. } 150 \text{ Lakh}
* Gross Profit Ratio = 20%\displaystyle 20\%
* Gross Profit = Rs. 150 Lakh×20%=Rs. 30 Lakh\displaystyle \text{Rs. } 150 \text{ Lakh} \times 20\% = \text{Rs. } 30 \text{ Lakh}
* COGS=Sales−Gross Profit=150 Lakh−30 Lakh=Rs. 120 Lakh\displaystyle \text{COGS} = \text{Sales} - \text{Gross Profit} = 150 \text{ Lakh} - 30 \text{ Lakh} = \text{Rs. } 120 \text{ Lakh}

**2. Inventory Calculation:**
* Inventory Turnover Ratio = 6 Times\displaystyle 6 \text{ Times}
* Inventory Turnover Ratio=COGSAverage Inventory\displaystyle \text{Inventory Turnover Ratio} = \frac{\text{COGS}}{\text{Average Inventory}}
* Average Inventory=COGS6=Rs. 120 Lakh6=Rs. 20 Lakh\displaystyle \text{Average Inventory} = \frac{\text{COGS}}{6} = \frac{\text{Rs. } 120 \text{ Lakh}}{6} = \text{Rs. } 20 \text{ Lakh}

**3. Receivables Calculation:**
* Credit Sales (80% of total sales) = Rs. 150 Lakh×80%=Rs. 120 Lakh\displaystyle \text{Rs. } 150 \text{ Lakh} \times 80\% = \text{Rs. } 120 \text{ Lakh}
* Average Collection Period = 2 months\displaystyle 2 \text{ months}
* Receivables Turnover Ratio = 12 monthsAverage Collection Period=122=6 times\displaystyle \frac{12 \text{ months}}{\text{Average Collection Period}} = \frac{12}{2} = 6 \text{ times}
* Average Receivables=Credit SalesReceivables Turnover Ratio=Rs. 120 Lakh6=Rs. 20 Lakh\displaystyle \text{Average Receivables} = \frac{\text{Credit Sales}}{\text{Receivables Turnover Ratio}} = \frac{\text{Rs. } 120 \text{ Lakh}}{6} = \text{Rs. } 20 \text{ Lakh}

Thus, both Inventory and Receivables are `Rs. 20 Lakh` each.

Hence, **Option A** is the correct answer.

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