State, giving reason, which of the following transactions would (i) increase, (ii) decrease, (ii) netre
that of in the beginning.
75. Calculate Inventory Turnover Ratio from the following information:
Opening Inventory + 40,000; Purchases * 3,20,000; and Closing Inventory 1,20,000
(a) Sale of goods for 40,000 (Cost 32,000).
(b) Increase in the value of Closing Inventory by 40,000.
(c) Goods purchased for 80,000.
(d) Purchases Return 20,000.
(e) Goods costing 10,000 withdrawn for personal use.
(f) Goods costing 20,000 distributed as free samples.
Answers
Explanation:
Inventory Turnover Ratio = Cost of goods sold (COGS)
Average Inventory
2015-16
Gross Profit = 25% of cost = 20% of sales = 20/100 X 75,00,000 = Rs. 15,00,000
Cost of goods sold = Revenue from operations - Gross profit
= 50,00,000 - 10,00,000
= Rs. 40,00,000
Average Inventory = 5,00,000 + 7,00,000 = 12,00,000 = Rs. 6,00,000
2 2
Inventory turnover ratio = 40,00,000 = 6.7 times
6,00,000
2016-17
Gross profit = 20% of sale = 20 X 50,00,000 = Rs. 10,00,000
100
Cost of goods sold = Revenue from operations - Gross profit
= 75,00,000 - 15,00,000
= Rs. 60,00,000
Average inventory = 7,00,000 + 17,00,000 = 24,00,000 = Rs. 12,00,000
2 2
Inventory turnover ratio = 60,00,000 = 5 times
12,00,000