Question

From the following Statement of Profit and Loss for the year ended 31st March, 2019 of Rex Ltd., calculate Inventory Turnover Ratio:

STATEMENT OF PROFIT AND LOSS
for the year ended 31st March, 2019 

Particulars	Note No.	Amount (₹)
I. Revenue from Operations (Net Sales)		6,00,000
II. Expenses:
(a) Purchases of Stock-in-Trade		3,00,000
(b) Change in Inventory of Stock-in-Trade	1	50,000
(c) Employees Benefit Expenses		60,000
(d) Other Expenses	2	45,000
Total Expenses		4,55,000
III. Profit before Tax (I-II)		1,45,000
IV. Less: Tax		45,000
V. Profit after Tax (III-IV)		1,00,000

Notes to Accounts

Particulars	Amount (₹)
I. Change in Inventory of stock-in-Trade
Opening Inventory	1,25,000
Less: Closing Inventory	75,000
	50,000
2. Other Expenses
Carriage Inwards	15,000
Miscellaneous Expenses	30,000
	45,000

Answer 1

Cost of Goods Sold = Opening Inventory+ Purchases + Direct Expenses – Closing Inventory

= Rs 1,25,000 + Rs 3,00,000 + Rs 15,000 – Rs 75,000 = Rs 3,65,000

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

= `(125000 + 75000)/2 = 100000`

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

`= 365000/100000` = 3.65 times