EZZ Ltd and RHI Ltd are competitors operating in the same industry. The following information has been extracted from their annual reports over a 2 year period:

Required:

(a) Calculate the receivables turnover ratio and average collection period for each company. Comment on the difference in their collection experiences.

(b) These companies operate in an industry that has an average receivables turnover of 63 days. Both companies apply the same credit terms 2/10, n60. Using this information and the ratios calculated in part

(a) compare their credit collection policies to the industry standard and advise each company’s performance.

Transcribed Image Text:

Sales (net credit) revenue for year Allowance for Doubtful Debts 1/7/23 Allowance for Doubtful Debts 30/6/24 Accounts Receivable (gross) 1/7/23 Accounts Receivable (gross) 30/6/24 EZZ Ltd $6 195 630 RHI Ltd $4 251 030 56 950 47 440 35 910 47 470 1517 560 772 800 1 165 920 922 080