SALES LEDGER DEBTOR DAYS CALCULATION

SALES LEDGER DEBTOR DAYS CALCULATION

1.      PURPOSE

To calculate on a consistent basis throughout the Company and for each Units, the number of days sales represented by customer debt.

2.      SCOPE

To apply to all Units and subsidiaries. To apply to monthly returns submitted to Head Office.

3.      POLICY

The Sales Ledger debtor days ratio should be calculated to highlight possible problems in the level of debtors. The method of calculation described in “Procedures” below should be applied.

4.      PROCEDURE

The Sales Ledger debtor days ratio compares the trade debtor balance at a point in time with the individual sales achieved in previous months. In order to create a fair comparison, the following points should be noted:

a)      the trade debtors figure includes sales taxes and excise and service tax, wherever applicable. It is therefore, necessary to add the related sales taxes, excise, service tax as applicable, to the monthly sales credited to the sales ledger; and

b)      since the purpose of this ratio is to highlight debt collection difficulties, the gross trade debtors figure should be used; ie.e. trade debtors before any provisions for bad and doubtful debts.

The ratio should be calculated by adding together the invoiced sales figures for the previous months until the total is equal to the trade debtors’ balance. The number of days sales may then be calculated by aggregating the number of days in each of these months/proportions of months.

e.g.:

Trade debtors as at 31^st Dec =                        6430 Lacs

Provision for bad and doubtful debts=            (420) Lacs

                                                                        _________

Net Debtors=                                                   6010 Lacs

                                                                        _________

Monthly invoiced sales credited to the sales ledger:

                                    Sales incl.Excise                      Sales Tax                     Total Sales

                                    Invoices

December                    3001                                        637                              3638

November                    2067                                        438                              2505

October                       1525                                        323                              1848

Sales Ledger debtor days calculation:

Gross Trade Debtor Days Calculation:            6430

Invoiced sales in previous months:                                          No. of days in month

December                                                        3638                            31

November                                                        2505                            30

October (proportionate)                                     287                            05*

Total                                                                6430                              66

Number of days sales represented by customer debt is 66 days.

5.      DEFINITION

The debtors’ figure included in the consolidated balance sheet should be accounted for in accordance with the Indian GAAP, following the principles of revenue recognition and accrual accounting.

6.      RESPONSIBILITY

Chief Financial Officer to update policy as necessary. Chief Accountant and the Unit Accountant’s to implement policy.