Question

Revenue from Operations ₹ 5,00,000, Inventory Turnover Ratio 5 times, and Gross Profit Ratio 25%. What will be the value of closing inventory if closing inventory is ₹ 20,000 more than opening inventory?

Options

• ₹ 95,000

• ₹ 55,000

• ₹ 85,000

• ₹ 90,000

Answer 1

₹ 85,000

Explanation:

Cost of Revenue from Operations = `₹ 5,00,000 × 75/100`

= ₹ 3,75,000

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

Average Inventory = `(₹ 3,75,000)/5`

= ₹ 75,000

Average Inventory = `(x"(Opening Inventory)" + x + ₹ 20,000 "(Closing Inventory)")/2`

₹ 75,000 = `(x + x + ₹ 20,000)/2`

₹ 1,50,000  = x + x + ₹ 20,000)

2x = ₹ 1,50,000 − ₹ 20,000

x = ₹ 65,000 (Opening Inventory)

Closing Inventory = ₹ 65,000 + ₹ 20,000

= ₹ 85,000