Question

Following are the details available:

	₹
Current Assets	1,00,000
Current Liabilities	70,000
Total Revenue from Operations (Total Sales)	2,00,000
Cost of Revenue from Operations (Cost of Goods Sold)	1,50,000
Operating Expenses	20,000
Inventory turnover	5 times

If the closing inventory is more by ₹ 4,000 than opening inventory, determine the following:

1. Opening Inventory
2. Liquid Ratio

Answer 1

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

5 = `(₹ 1,50,000)/"Average Inventory"`

Average Inventory = `(₹ 1,50,000)/5`

= ₹ 30,000

Let the Opening Inventory be x.

Closing Inventory = x + ₹ 4,000

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

₹ 30,000 = `(x + x + ₹ 4,000)/2`

₹ 30,000 × 2 = 2x + ₹ 4,000

₹ 60,000 = 2x + ₹ 4,000

2x = ₹ 60,000 − ₹ 4,000

2x = ₹ 56,000

x = `(₹ 56,000)/2`

Opening Inventory (x) = ₹ 28,000

Closing Inventory = ₹ 28,000 + ₹ 4,000

= ₹ 32,000

Liquid Assets = Current Assets − Inventory

= ₹ 1,00,000 − ₹ 32,000

= ₹ 68,000

Liquid Ratio = `"Liquid Assets"/"Current Liabilities"`

= `(₹ 68,000)/(₹ 70,000)`

= 0.97 : 1