Question 34 of 47intermediate🔧 ApplyNumerical3 marks

Compute Inventory Turnover Ratio from the following information: Revenue from Operations Rs. 2,00,000 Gross Profit Rs. 50,000 Inventory at the end Rs. 60,000 Excess of inventory at the end over inventory in the beginning Rs. 20,000

Correct Answer

Cost of Revenue from Operations = Revenue from Operations – Gross Profit = Rs. 2,00,000 – Rs. 50,000 = Rs. 1,50,000

Inventory in the beginning = Inventory at the end – Excess of inventory at the end over inventory in the beginning = Rs. 60,000 – Rs. 20,000 = Rs. 40,000

Average Inventory = (Inventory in the beginning + Inventory at the end) / 2 = (Rs. 40,000 + Rs. 60,000) / 2 = Rs. 50,000

Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory = Rs. 1,50,000 / Rs. 50,000 = 3 Times

Exercise: Questions for Practice | Q: 9 | (Page 43)
For More Understanding

Explanation

To solve this, we first determine the Cost of Revenue from Operations using the formula 'Revenue from Operations - Gross Profit' found in the context. Next, we calculate the opening inventory by subtracting the given excess from the closing inventory. Then, we find the Average Inventory using the formula '(Inventory in the beginning + Inventory at the end) / 2'. Finally, we apply the Inventory Turnover Ratio formula 'Cost of Revenue from Operations / Average Inventory' as illustrated in the textbook examples.

Solution Steps

  1. Step 1: Calculate Cost of Revenue from Operations (Revenue from Operations - Gross Profit).

  2. Step 2: Determine Inventory in the beginning (Inventory at the end - Excess).

  3. Step 3: Calculate Average Inventory ((Inventory in the beginning + Inventory at the end) / 2).

  4. Step 4: Compute Inventory Turnover Ratio (Cost of Revenue from Operations / Average Inventory).

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