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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