Question 47 of 47intermediate🔧 ApplyNumerical4 marks

From the following information calculate Gross Profit Ratio, Inventory Turnover Ratio and Trade Receivable Turnover Ratio. Revenue from Operations Rs. 3,00,000 Cost of Revenue from Operations Rs. 2,40,000 Inventory at the end Rs. 62,000 Gross Profit Rs. 60,000 Inventory in the beginning Rs. 58,000 Trade Receivables Rs. 32,000

Correct Answer

Gross Profit Ratio = 20%

Inventory Turnover Ratio = 4 Times

Trade Receivable Turnover Ratio = 9.38 Times

Exercise: Questions for Practice | Q: 22 | (Page 47)
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Explanation

This question tests the calculation of three key accounting ratios. The Gross Profit Ratio is calculated by dividing Gross Profit by Revenue from Operations and multiplying by 100. The Inventory Turnover Ratio requires calculating Average Inventory first (average of opening and closing inventory), then dividing Cost of Revenue from Operations by Average Inventory. The Trade Receivable Turnover Ratio is calculated by dividing Revenue from Operations by Trade Receivables. All formulas are standard NCERT formulas used in accounting ratio analysis.

Solution Steps

  1. Step 1: Calculate Gross Profit Ratio = (Gross Profit / Revenue from Operations) × 100 = (Rs. 60,000 / Rs. 3,00,000) × 100 = 20%

  2. Step 2: Calculate Average Inventory = (Inventory in the beginning + Inventory at the end) / 2 = (Rs. 58,000 + Rs. 62,000) / 2 = Rs. 1,20,000 / 2 = Rs. 60,000

  3. Step 3: Calculate Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory = Rs. 2,40,000 / Rs. 60,000 = 4 Times

  4. Step 4: Calculate Trade Receivable Turnover Ratio = Revenue from Operations / Trade Receivables = Rs. 3,00,000 / Rs. 32,000 = 9.38 Times

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