Question

Cost of Revenue from Operations	₹ 7,20,000
Inventory Turnover Ratio	4 Times

Find out the value of opening inventory and closing inventory if closing inventory is 80% of opening inventory.

Answer 1

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

4 = `(₹ 7,20,000)/("Average Inventory")`

Average Inventory = `(₹ 7,20,000)/4`

= ₹ 1,80,000

Let Opening Inventory = x

Closing Inventory = 80% of opening inventory

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

Average Inventory = `("Opening Inventory" + "80% Opening Inventory")/2`

₹ 1,80,000 = `((1 + 80/100) "Opening Inventory")/2`

`(1 + 80/100)` Opening Inventory = ₹ 3,60,000

`180/100` Opening Inventory = ₹ 3,60,000

Opening Inventory = `(₹ 3,60,000 xx 100)/180`

Opening Inventory = ₹ 2,00,000

Closing Inventory = 80% (2,00,000)

= ₹ 1,60,000