Question

Closing Inventory ₹ 22,000; Purchases ₹ 1,48,000; Purchase Return ₹ 8,000; Carriage ₹ 4,000; Revenue from Operations (Sales) ₹ 1,90,000; Revenue from Operations Return (Sales Returns) ₹ 10,000; Gross Profit 20% on Cost. Calculate Inventory Turnover Ratio.

Answer 1

Net Revenue from Operations = Revenue from Operations (Sales) − Revenue from Operations Return (Sales Returns)

= ₹ 1,90,000 − ₹ 10,000

= ₹ 1,80,000

Let the Cost of Revenue from Operations be x.

Gross Profit = Revenue from Operations − Cost of Revenue from Operations

`20/100 xx x` = ₹ 1,80,000 − x

x + `20/100` x = ₹ 1,80,000

`120/100` x = ₹ 1,80,000

x = `(₹ 1,80,000 xx 100)/120`

Cost of Revenue from Operations (x) = ₹ 1,50,000

Cost of Revenue from Operations = Opening Inventory + Purchases − Purchase Return + Carriage − Closing Inventory

₹ 1,50,000 = Opening Inventory + ₹ 1,48,000 − ₹ 8,000 + ₹ 4,000 − ₹ 22,000

₹ 1,50,000 = Opening Inventory + ₹ 1,22,000

Opening Inventory = ₹ 1,50,000 − ₹ 1,22,000

= ₹ 28,000

Average Inventory = `("Opening Inventory" + "Closing Inventory")/2`

= `(₹ 28,000  + ₹ 22,000)/2`

= `(₹ 50,000)/2`

= ₹ 25,000

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

= `(₹ 1,50,000)/(₹ 25,000)`

= 6 Times