Question

If Opening Inventory is Rs 1,20,000, Cost of Revenue from Operation is Rs 10,00,000 and Inventory 1Turnover Ratio is 5 times , then Closing inventory will be:
(a) Rs 3,20,000
(b) Rs2,80,000
(c) Rs.1,60,000
(d) Rs 4,00,000

Answer 1

Explanation:

Inventory Turnover Ratio is 5 times

5 = COGS/ Average Inventory

5 = 10,00,000/Average Inventory

Average Inventory = 2,00,000

Average Inventory = (Opening Inventory+Closing Inventory)/2

= 1,20,000 + Closing Inventory)/2 = 2,00,000

= 4,00,000 = 1,20,000 + Closing Inventory

Closing Inventory = 4,00,000 - 1,20,000

Closing Inventory = 2,80,000

Hence, option (b) Rs 2,80,000

Closing Inventory = 2,80,000

Answer 2

Answer:

Option b) Rs. 2,80,000

Explanation:

★ Inventory Turnover Ratio :

$\sf{\longrightarrow{\dfrac{Cost \: of \: Revenue \: from \: Operation}{Average \: Inventory}}}$

$\sf{\longrightarrow \: 5 \: = \: {\dfrac{10,00,000}{Average \: Inventory}}}$

$\longrightarrow$ Average Inventory = $\dfrac{10,00,000}{5}$

$\longrightarrow$ Average Inventory = 2,00,000

★ Average Inventory =

$\sf{\longrightarrow{\dfrac{Ope.ning \: Inventory \: + \: Closing \: Inventory}{2}}}$

$\sf{\longrightarrow \: 2,00,000 \: = \: {\dfrac{1,20,000\: + \: Closing \: Inventory}{2}}}$

$\longrightarrow$ 1,20,000 + Closing Inventory = 2,00,000 × 2

$\longrightarrow$ 1,20,000 + Closing Inventory = 4,00,000

$\longrightarrow$ Closing Inventory = 4,00,000 - 1,20,000

$\longrightarrow$ Closing Inventory = 2,80,000

Therefore, Option b) Rs. 2,80,000

Closing Inventory will be Rs. 2,80,000