Question

83. Inventory Turnover Ratio 5 times: Cost of Revenue from Operations (Cost of Goods Sold) 18.9040
Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning​

Answer 1

Calculation of Inventory :

Sales = Cost of Goods Sold + Gross Profit

8,00,000 = Cost of Goods Sold - 1/4 on cost

Let Cost of Goods Sold = x

8,00,000 = x + x/4

Cost of Goods Sold = Rs 6,40,000

Stock Turnover Ratio = Cost of Goods Sold/Average Inventory

5 = Rs 6,40,000/Average Inventory

Average Inventory = Rs 1,28,000 (6,40,000/5)

If Opening Stock = x

Closing Stock = x + Rs 20,000

Average Stock = Opening Stock + Closing Stock / 2

Rs 1,28,000 = x + x + Rs 20,000

Opening Stock (x) = Rs 1,18,000

Closing Stock (x + Rs 20,000) =Rs 1,38,000 (1,18,000+20,000)

Calculation of Current Assets:

Acid Test Ratio = Quick Assets / Current Liability

0.7 = Quick Assets / Rs 2,40,000

Quick Assets = Rs 1,68,000 (2,40,000*0.7)

Current Assets = Quick Assets + Closing Stock

Current Assets = Rs 3,06,000 (1,68,000+1,38,000)

Calculation of Current Ratio:

Current Ratio = Current Assets/Current Liabilities

Current Ratio = 3,06,000/2,40,000

Current Ratio = 1.275:1