Question

Cost of revenue from operations ₹ 6,00,000; Inventory Turnover Ratio 5; Find out the value of opening inventory, if opening inventory is ₹ 8,000 less than the closing inventory.

Options

• ₹ 1,12,000

• ₹ 1,16,000

• ₹ 1,28,000

• ₹ 1,24,000

Answer 1

₹ 1,16,000

Explanation:

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

5 = `(6,00,000)/("Average Inventory")`

Average Inventory = `(6,00,000)/5`

= ₹ 1,20,000

Let the Closing Inventory be x.

Opening Inventory = `x - 8,000`

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

1,20,000 = `(x - 8,000 + x)/2`

1,20,000 × 2 = `x - 8,000 + x`

2,40,000 = `2x - 8,000`

2,40,000 + 8,000 = `2x`

2,48,000 = `2x`

`x` = `(2,48,000)/2`

Closing Inventory `(x)` = ₹ 1,24,000

Opening Inventory = Closing Inventory − 8,000

= 1,24,000 − 8,000

= ₹ 1,16,000