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From the following information calculate inventory turnover ratio; Revenue from operations Rs.16,00,000; Average Inventory Rs.2,20,000; Gross Loss Ratio 5%. - Accountancy

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From the following information calculate inventory turnover ratio; Revenue from operations Rs.16,00,000; Average Inventory Rs.2,20,000; Gross Loss Ratio 5%.

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Solution

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

`"Gross Loss Ratio"="Gross Loss"/"Revenue from Operations"`

`5%="Gross Loss"/(16,00,000)=>"Gross Loss"=5%"of "16,00,000 = 80,000`

Cost of Revenue from Operations = Revenue from Operations + Gross Loss

= 16,00,000 + 80,000 = 16,80,000

`"Inventory Turnover Ratio"=(16,80,000)/(2,20,000)=7.64 " Times"`

Concept: Activity Ratios - Inventory Turnover Ratio
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