Question

If opening inventory is ₹ 1,20,000, Cost of Revenue from Operations is ₹ 10,00,000 and Inventory Turnover Ratio is 5 Times, then Closing Inventory will be ______.

Options

• ₹ 3,20,000

• ₹ 2,80,000

• ₹ 1,60,000

• ₹ 4,00,000

Answer 1

If opening inventory is ₹ 1,20,000, Cost of Revenue from Operations is ₹ 10,00,000 and Inventory Turnover Ratio is 5 Times, then Closing Inventory will be ₹ 2,80,000.

Explanation:

The Inventory Turnover Ratio is calculated as Cost of Revenue from Operations divided by Average Inventory.

1. Average Inventory:
\[\text{Average Inventory} = \frac{\text{Cost of Revenue from Operations}}{\text{Inventory Turnover Ratio}} = \frac{10,00,000}{5} = \text{₹ } 2,00,000\]

2. Closing Inventory using the average formula:
$$\text{Average Inventory} = \frac{\text{Opening Inventory} + \text{Closing Inventory}}{2}$$
$$2,00,000 = \frac{1,20,000 + \text{Closing Inventory}}{2}$$
$$4,00,000 = 1,20,000 + \text{Closing Inventory}$$
$$\text{Closing Inventory} = 4,00,000 - 1,20,000 = {\text{₹ } 2,80,000}$$