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Calculate Inventory Turnover Ratio - Accountancy

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Ledger
Inventory in the beginning ₹ 30,000
Inventory at the end ₹ 50,000
Net Purchases ₹ 5,00,000
Wages ₹ 25,000
Salaries ₹ 40,000
Revenue from operations ₹ 8,00,000
Carriage Inwards ₹ 5,000
Returns Outwards ₹ 30,000

Calculate Inventory Turnover Ratio

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Solution

Inventory Turnover Ratio = Cost of Goods Sold/Average Stock
Opening Inventory = ₹ 30,000

Closing Inventory

 = ₹ 50,000
Average Inventory = (Opening Inventory + Closing Inventory) / 2
  = `(30,000 + 50,000) / 2` = ₹ 40,000
Cost of Goods Sold = Opening Stock + Net Purchase + Direct Expenses – Closing Stock
  = ₹ (30,000 + 5,00,000 + 25,000 + 5,000 – 50,000)
  = ₹ 5,10,000

Inventory Turnover Ratio

= Cost of Goods Sold/Average Stock

 

= `(5,10,000)/(40,000)` = 12.75 times
Concept: Activity Ratios - Inventory Turnover Ratio
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