Question

A company’s inventory turnover is 5 times. Inventory at the end of the year is ₹ 4,000 more than inventory at the beginning of the year. Revenue from Operations during the year (all credit) were ₹ 3,00,000. Rate of Gross Profit is 25% on cost of Revenue from Operations. Current Liabilities at the end of the year were ₹ 50,000. Quick Ratio is 1 : 1.

Calculate:

1. Cost of Revenue from Operations (Cost of Goods Sold).
2. Opening inventory.
3. Closing inventory.
4. Quick Assets.
5. Current Assets at the end.

Answer 1

(i)

Let the Cost of Revenue from Operations be x.

Gross Profit = Net Sales − Cost of Revenue from Operations

25% of x = ₹ 3,00,000 − x

x + `25/100` x = ₹ 3,00,000

`125/100` x = ₹ 3,00,000

x = `(₹ 3,00,000 xx 100)/125`

x (Cost of Revenue from Operations) = ₹ 2,40,000

(ii)

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

5 = `(₹ 2,40,000)/"Average Inventory"`

Average Inventory = `(₹ 2,40,000)/5`

= ₹ 48,000

Let the Opening Inventory be x.

Closing Inventory = x + ₹ 4,000

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

₹ 48,000 = `(x + x + ₹ 4,000)/2`

₹ 48,000 × 2 = 2x + ₹ 4,000

₹ 96,000 = 2x + ₹ 4,000

2x = ₹ 96,000 − ₹ 4,000

2x = ₹ 92,000

x = `(₹ 92,000)/2`

x (Opening Inventory) = ₹ 46,000

(iii)

Closing Inventory = ₹ 46,000 + ₹ 4,000

= ₹ 50,000

(iv)

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

`1/1` = `"Quick Assets"/(₹ 50,000)`

Quick Assets = ₹ 50,000

(v)

Current Assets = Quick Assets + Closing Inventory

= ₹ 50,000 + ₹ 50,000

= ₹ 1,00,000