Calculate Inventory Turnover Ratio if: Inventory in the beginning is Rs. 76,250, Inventory at the end is Rs. 98,500, Sales is Rs. 5,20,000, Sales Return is Rs. 20,000, Purchases is Rs. 3,22,250.
Average Inventory is calculated by averaging the opening and closing inventory. Average Inventory = (Rs. 76,250 + Rs. 98,500) / 2 = Rs. 87,375.
Cost of Revenue from Operations is calculated using the formula: Inventory in the beginning + Purchases – Inventory at the end. Cost of Revenue from Operations = Rs. 76,250 + Rs. 3,22,250 – Rs. 98,500 = Rs. 3,00,000.
Inventory Turnover Ratio is calculated by dividing the Cost of Revenue from Operations by Average Inventory. Inventory Turnover Ratio = Rs. 3,00,000 / Rs. 87,375 = 3.43 times.
Explanation
The solution follows the methodology shown in Illustration 12 of the provided context. The Inventory Turnover Ratio is calculated by dividing the Cost of Revenue from Operations by Average Inventory. The Cost of Revenue from Operations is derived by adding Opening Inventory and Purchases, then subtracting Closing Inventory (as per the formula in Illustration 12: Inventory in the beginning + Net Purchases - Inventory at the end). The Average Inventory is calculated using the standard formula provided in the text. The values for Sales and Sales Return are not required for this specific calculation method shown in the context.
Solution Steps
Step 1: Calculate Average Inventory using the formula: (Inventory in the beginning + Inventory at the end) / 2. Calculation: (76,250 + 98,500) / 2 = 87,375.
Step 2: Calculate Cost of Revenue from Operations using the formula: Inventory in the beginning + Purchases - Inventory at the end. Calculation: 76,250 + 3,22,250 - 98,500 = 3,00,000.
Step 3: Calculate Inventory Turnover Ratio using the formula: Cost of Revenue from Operations / Average Inventory. Calculation: 3,00,000 / 87,375 = 3.43 times.