Question

Find out the value of opening inventory from the following particulars:

Total Revenue from Operations	₹ 2,00,000
Inventory Turnover Ratio	5 Times
Gross Profit	25% on Revenue from Operations

You are informed that closing inventory is ₹ 8,000 more than the opening inventory.

Answer 1

Cost of Revenue from Operation = Revenue from Operation − Gross Profit

= ₹ 2,00,000 − `25/100 xx ₹ 2,00,000`

= ₹ 2,00,000 − ₹ 50,000

= ₹ 1,50,000

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

5 = `(₹ 1,50,000)/"Average Inventory"`

Average Inventory = `(₹ 1,50,000)/5`

= ₹ 30,000

Let the Opening Inventory be x.

Closing Inventory = x + ₹ 8,000

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

₹ 30,000 = `(x + x + ₹ 8,000)/2`

₹ 30,000 × 2 = x + x + ₹ 8,000

₹ 60,000 = 2x + ₹ 8,000

2x = ₹ 60,000 − ₹ 8,000

x = `(₹ 52,000)/2`

Opening Inventory (x) = ₹ 26,000