Login

In Illustration 43 TS Grehwal part 2 page 8.51 If the operating cycle is taken to be 24 months then how will the solution change???
What will be the new solution????

In Illustration 43 TS Grehwal part 2 page 8.51 If the operating cycle is taken to be 24 months then how will the solution change??? What will be the new solution???? 1.01 issued on April. 20B, 10,0, Debentures on 31st March, 2017- nxecornpany wr

Dear Student,

Nankee has interpreted the situation correctly above; and as far as solution is concerned if operating cycle is 2 years or 24 months instead of 12 months then the balance sheet as on 31 Mar 2014 would show both current & non- current assets as Rs 50,000;

i.e. Rs 50,000 under current assets as discount to be written off in year 2 and Rs 50,000 under non-current assets as discount to be written off in year 4; There would be no discount written off in year 1

Regards,

 

  • 0
View Full Answer
By default the operating cycle is always defined as a period of 12 months common to all Businesses. 

"The operating cycle is also known as the cash conversion cycle. In the context of a manufacturer the operating cycle has been described as the amount of time that it takes for a manufacturer's cash to be converted into products plus the time it takes for those products to be sold and turned back into cash. In other words, the manufacturer's operating cycle involves:
  • paying for the raw materials needed in its products
  • paying for the labor and overhead costs needed to convert the raw materials into products
  • holding the finished products in inventory until they are sold
  • waiting for the customers' cash payments for the products that have been sold
Some calculate the operating cycle to be the sum of:
  • the days' sales in inventory (365 days/inventory turnover ratio), plus
  • the average collection period (365 days/accounts receivable turnover ratio)"
  • 0
Also if at all the operating cycle was to be 24 months or 2 years, which is highly unlikely, the loss would be written off in 2 equal instalments rather than 4.
  • 0
What are you looking for?