Question

Opening Inventory ₹ 40,000; Purchase ₹ 4,00,000; Purchase Return ₹ 12,000, what will be Inventory turnover ratio if Closing Inventory is less than Opening Inventory by ₹ 8,000?

Options

• 9 Times

• 10.78 Times

• 11 Times

• 8.82 Times

Answer 1

11 Times

Explanation:

Net Purchases = Purchases − Purchase Return

= 4,00,000 − 12,000

= ₹ 3,88,000

Closing Inventory is less than Opening Inventory by ₹ 8,000

Closing Inventory = Opening Inventory − 8,000

= 40,000 − 8,000

= ₹ 32,000

Cost of Revenue from Operation = Opening Inventory + Net Purchases − Closing Inventory

= 40,000 + 3,88,000 − 32,000

= ₹ 3,96,000

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

= `(40,000 + 32,000)/2`

= `(72,000)/2`

= ₹ 36,000

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

= `(3,96,000)/(36,000)`

= 11 Times