Question

The following information of ABC Ltd. has been provided.

Gross Profit Ratio 15%

Inventory Turn over ratio = 2 times

Trade Receivables Turn over ratio = 3 months

Gross Profit = ₹ 60,000

Closing inventory is equal to Opening inventory

Determine:

(i) Revenue from Operations

(ii) Closing inventory

(iii) Trade Receivables​

Answer 1

Answer:

i) 400000

ii) 1.7 times

iii) Rs 100000

Explanation:

i) Gross profit ratio = Gross profit/sales *100

15 = 60000/sales *100

sales/ revenue from operations = Rs 400000

ii) inventory turnover ratio = cost of goods sold / average inventory

since opening and closing inventory is same , hence both are total inventory/2 that is Rs200000

and cost of goods sold = total revenue - gross profit

cost of goods sold= 400000- 60000 = Rs 340000

inventory turnover ratio = 340000/ 200000 = 1.7 times

iii) average collection period = 12 months/ trade receivable turn over ratio

3 = 12/ trade receivable turnover ratio

hence trade receivable turnover ratio = 4

trade receivable turnover ratio= credit sales/ trade receivables

4= 400000/ trade receivable ( since there is no credit sales or cash sales mentioned separately, we need to assume that the whole sale is made in credit)

hence trade receivable= Rs 100000