Question

Question 4                                                                                                                                      (Marks: 10)

The following information is an extract of the statement of profit or loss of Palladium Ltd for the

current financial year:

Annual sales (20% cash) R625 000

Cost of Sales R125 000

Purchases (50% on credit) R200 000

The average accounts receivable collection period is 45 days. The average payment supplier period

is 50 days and the cash conversion cycle has been calculated as 55 days.

REQUIRED:

Q.4.1 Calculate the total average investment in the cash conversion cycle (CCC) for

Palladium Ltd.

Assume that there are 365 days in a year.

Round to the nearest Rand.

(10)

Answer 1

Particulars	Amount In Rand	Credit	cash
Sales	625000	500000	125000
Cost of sales	125000
Purchases	200000	100000	100000
Accounts receivable collection period	45 days
Average payment supplier period	50 days
Cash conversion cycle	55 days
Accounts receivable collection period	=365*Avg account receivable/Net credit sales
Avg Accounts receivable	=45*50000/365
	61643.84
Average payment supplier period	=365*Avg account payable/Net purchase sales
Avg Accounts payable	=50*100000/365
	13,698.63
CCC=DIO+DSO-DPO	55=(Avg Invetory/342.45)+45 days-40 days
	Average inventory investment in CCC = R 17122.5
DIO=Days inventory outstanding= Avg Inventory/(Cost of sales/365)	=Avg intventory/342.465
DSO= Days sales outstanding= Avg AR/(Net creditsales/365)	=61643.84/(500000/365)
	45.00	Days
DPO= Days payable outstanding= Avg AP/(Net credit purchases/365)	=13698.63/(125000/365)
	40.00	Days

Average inventory investment in CCC = R 17122.5