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Calculate Inventory Turnover Ratio from the Data Given Below: - Accountancy

Sum

Calculate Inventory Turnover Ratio from the data given Below:

Inventory in the beginning of the year Rs 20000
Inventory at the end of the year Rs 10000
Purchases Rs 50,000
Carriage Inwards Rs 5000
Revenue from Operations, i.e., Sales  Rs 100000

State the significance of this ratio.

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Solution

Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards − Closing Stock

= 20,000 + 50,000 + 5,000 − 10,000 = 65,000

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

`= (20000 + 10000)/2 = 15000`

Inventory Turnover Ratio=`"Cost of goods Sold"/"Average Stock"`

`=65000/15000 = 4.33` times

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APPEARS IN

TS Grewal Class 12 Accountancy - Analysis of Financial Statements
Chapter 3 Accounting Ratios
Exercise | Q 70 | Page 100
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