Question

Opening Inventory of a firm is ₹ 80,000. Cost of revenue from operations is ₹ 6,00,000. Inventory Turnover Ratio is 5 times. Its closing inventory will be ______.

Options

• ₹ 1,60,000

• ₹ 1,20,000

• ₹ 80,000

• ₹ 2,00,000

Answer 1

Opening Inventory of a firm is ₹ 80,000. Cost of revenue from operations is ₹ 6,00,000. Inventory Turnover Ratio is 5 times. Its closing inventory will be ₹ 1,60,000.

Explanation:

Inventory Turnover Ratio = `"Cost of revenue from operations"/"Average Inventory"`

5 = `(6,00,000)/"Average Inventory"`

Average Inventory = `(6,00,000)/5`

= ₹ 1,20,000

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

1,20,000 = `(80,000 + "Closing Inventory")/2`

1,20,000 × 2 = 80,000 + Closing Inventory

2,40,000 = 80,000 + Closing Inventory

Closing Inventory = 2,40,000 − 80,000

= ₹ 1,60,000