Question

Calculate the value of the closing inventory of Lily Ltd. from the particulars given below:

Particulars
Revenue from Operations	₹ 5,50,000
Opening Inventory	₹ 1,00,000
Inventory Turnover Ratio	4 times
Gross Profit	20% of Revenue from Operations

Answer 1

Calculate Gross Profit:

Gross Profit = 20% of Revenue from Operations

Gross Profit = `5,50,000 xx 20/100`

= 1,10,000

Calculate Cost of Revenue from Operations:

COGS = Revenue from Operations – Gross Profit

= 5,50,000 − 1,10,000

= 4,40,000

Average Inventory using Inventory Turnover Ratio:

Inventory Turnover Ratio = `"COGS"/"Average Inventory"`

4 = `(4,40,000)/"Average Inventory"`

Average Inventory = `(4,40,000)/4`

= 1,10,000

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

1,10,000 = `(1,10,000 + "Closing Inventory")/2`

1,10,000 × 2 = 1,00,000 + Closing Inventory

2,20,000 = 1,00,000 + Closing Inventory

Closing Inventory = 2,20,000 − 1,00,000

= 1,20,000