Question

Fine Fabrics Ltd. applied for a short-term loan of ₹ 5 Lac from HDFC Bank. It submitted to the Bank its Statement of Profit & Loss for the year ended 31st March, 2021 and a Balance Sheet as at that date. However, Bank requires certain accounting ratios of the Company for the purpose of analysis of its financial statements.

Following information has been derived from the financial statements of the Company:

Particulars	₹	₹
Cash & Cash Equivalents		13,000
Trade Receivables	29,000	25,000
Less: Provision for Doubtful Debts	4,000
Prepaid Insurance		2,000
Trade Payables		30,000
Bank Overdraft		10,000
Opening Inventory		56,000
Closing Inventory		44,000
Purchases		92,000
Revenue from Operations		1,80,000
Revenue from Operations Returns		20,000
Carriage Inwards		8,000
Office Expenses		8,000
Selling & Distribution Expenses		4,000

You are required to answer the following questions based on the above stated information:

Inventory Turnover Ratio will be:

पर्याय

• 2.08 times

• 2.24 times

• 3.12 times

• 1.12 times

Answer 1

2.24 times

Explanation:

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

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

= 56,000 + 92,000 + 8,000 − 44,000

= ₹ 1,12,000

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

= `(56,000 + 44,000)/2`

= `(1,00,000)/2`

= ₹ 50,000

Inventory Turnover Ratio = `(1,12,000)/(50,000)`

= 2.24 times