Question 39 of 47intermediate🔧 ApplyNumerical3 marks

Calculate Inventory Turnover Ratio from the data given below: Inventory in the beginning of the year Rs. 10,000 Inventory at the end of the year Rs. 5,000 Carriage Rs. 2,500 Revenue from Operations Rs. 50,000 Purchases Rs. 25,000

Correct Answer

Inventory Turnover Ratio = 4.33 Times

Exercise: Questions for Practice | Q: 14 | (Page 44)
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Explanation

The question requires calculating Inventory Turnover Ratio using the formula: Cost of Revenue from Operations divided by Average Inventory. The Cost of Revenue from Operations is calculated by adding Opening Inventory, Purchases, and Carriage (which is a direct expense), then subtracting Closing Inventory. Average Inventory is the simple average of opening and closing inventory.

Solution Steps

  1. Step 1: Calculate Average Inventory = (Inventory in the beginning + Inventory at the end) / 2 = (Rs. 10,000 + Rs. 5,000) / 2 = Rs. 15,000 / 2 = Rs. 7,500

  2. Step 2: Calculate Cost of Revenue from Operations = Inventory in the beginning + Purchases + Carriage – Inventory at the end = Rs. 10,000 + Rs. 25,000 + Rs. 2,500 – Rs. 5,000 = Rs. 32,500

  3. Step 3: Calculate Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory = Rs. 32,500 / Rs. 7,500 = 4.33 Times

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