FBS210 CCC example 22Apr24
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School
University of Pretoria**We aren't endorsed by this school
Course
FBS 210
Subject
Accounting
Date
Jan 14, 2025
Pages
2
Uploaded by ChefComputerBee51
22Apr24 CASH CONVERSION CYCLE (CCC) EXAMPLE (see Question 11.12 on p.11-26) QUESTIONS: 1.What are the number of days in the CCC and its components? 2.How do we calculate the cycles? 3.How can we remember which average to use?The Net Working Capital Cycle (NWCC) or Cash Conversion Cycle (CCC) requires financing and is the number of days between paying for raw material (start of the AP cycle) and payment for sales (end of the Trade Receivables (TR) cycle). CYCLES:RM(Raw Material)WIP (work in process)FG (finished goods)TR (Trade/ account receivables or debtor cycle; ACP)TP (trade/account payables or credit cycle; APP)AVERAGES TO USEPurchasesCOGSCOGSSalesData extracted from Thaba Ltd’s financial statements: TYPE OF ACCOUNT20X3 ENTRYAVERAGES (365 days)Inventory: Raw material (RM)180 000Work-in-process (WIP)93 360Finished goods (FG)142 875Purchases – raw material720 0001972.6Cost of goods sold (COGS)1 098 3603009.2Sales revenue1 188 0003254.8Trade Receivables (TR)297 000Trade payables (TP)126 000
ANSWERS:1.RM cycle = RM inventory /ave. purchases = 180 000/1972.6 = 91.25 days2.WIP cycle = WIP inventory/ave. COGS = 93 360/3009.2 = 31.02 days3.FG cycle = FG inventory/ave.COGS = 142 875/3009.2 = 47.48 days4.TR cycle = TR inventory/ave. sales = 297 000/3254.6= 91.25 days5.TP cycle = TP inventory/ave. purchases =126 000 /1972.6= 63.88 days6.CCC = RM + WIP + FG + TR – TP= 91.25 + 31.02 + 47.48 + 91.25 – 63.88 = 197.12 days