Question

9. If Revenue from Operations 8,00,000; Gross Profit Ratio 25%; Opening Inventory R1,00,000;
Closing Inventory 60,000. Then calculate Inventory Turnover Ratio.
​

Answer 1

Explanation:

(i) Cost of Revenue from Operations (Cost of Goods Sold) = Revenue from Operations i.e., Sales - Gross Profit

= Rs. 3,20,000 - 25% of 3,20,000

= Rs. 3,20,000 - 80,000 = Rs. 2,40,000

Average Inventory =

R

s

.

29

,

000

+

R

s

.

31

,

000

2

=

R

s

.

30

,

000

Inventory Turnover Ratio

=

Cost of Revenue from Operations

A

v

e

r

a

g

e

I

n

v

e

n

t

o

r

y

=

R

s

.

2

,

40

,

000

R

s

.

30

,

000

=

8

times

.

(ii) Average Age of Inventory (or Inventory Holding Period)

=

Days in a year

I

n

v

e

n

t

o

r

y

t

u

r

n

o

v

e

r

R

a

t

i

o

=

365

8

=

46

days