Question
1.The following information is extracted from the financial records Eta Limited for the year ended December 31, 2020. Sales = Rs. 2520 crores Cost of
1.The following information is extracted from the financial records Eta Limited for the year ended December 31, 2020.
Sales = Rs. 2520 crores
Cost of Goods Sold = Rs. 2160 Crores
Accounts Receivable as on January 1, 2020 = Rs. 130 crores.
Accounts Receivables as on December 31, 2020 = Rs. 150 crores.
Inventories as on January 1, 2020 = Rs. 106 crores
Inventories as on December 31, 2020 = Rs. 110 crores
Accounts Payable as on January 1, 2020 = Rs. 46 crores
Accounts Payable as on December 31, 2020 = Rs. 50 crores
Working capital investment (in the form of bank borrowings) at the rate of interest of 10% per annum, to finance current working capital requirements = Rs. 90 crores
a.What is the duration of operating cycle of Eta Limted? Interpret the value of the duration of the operating cycle.
b.What is the duration of cash cycle of Eta Limited? Interpret the value of the duration of the cash cycle.
c.If management of Eta Limited decides to reduce the cash cycle to 15 days, what is the expected savings in interest costs? Explain your answer.
1.The following information is extracted from the financial records Eta Limited for the year ended December 31, 2020.
Sales = Rs. 2520 crores
Cost of Goods Sold = Rs. 2160 Crores
Accounts Receivable as on January 1, 2020 = Rs. 130 crores.
Accounts Receivables as on December 31, 2020 = Rs. 150 crores.
Inventories as on January 1, 2020 = Rs. 106 crores
Inventories as on December 31, 2020 = Rs. 110 crores
Accounts Payable as on January 1, 2020 = Rs. 46 crores
Accounts Payable as on December 31, 2020 = Rs. 50 crores
Working capital investment (in the form of bank borrowings) at the rate of interest of 10% per annum, to finance current working capital requirements = Rs. 90 crores
a.What is the duration of operating cycle of Eta Limted? Interpret the value of the duration of the operating cycle.
b.What is the duration of cash cycle of Eta Limited? Interpret the value of the duration of the cash cycle.
c.If management of Eta Limited decides to reduce the cash cycle to 15 days, what is the expected savings in interest costs? Explain your answer.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To calculate the duration of the operating cycle of Eta Limited we need to find the days of sales in receivables DSR and the days of sales in invent...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Accounting Principles
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
13th edition
978-1-119-4110, 1119411483, 9781119411017, 978-1119411482
