Question

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Revenue from operations = Rs 300000
Inventory Turnover Ratio=4 times
Gross Profit =20% of sales
Calculate Current Ratio.
Please solve this problem ​

Answer 1

Explanation:

Gross Profit =20×300000/100=60000

Cost of Revenue from operations =300000-60000=240000.

Inventory Turnover Ratio =Cost of Revenue from operations/Average Inventory.

4= 240000/ Average Inventory.

Average Inventory =60000.

Average Inventory = Opening Inventory + Closing Inventory/2

let Opening Inventory be x.

Closing Inventory =x+20000.

60000= x+x+20000/2

120000=2x+20000

2x=100000.

x=50000.

Closing Inventory =50000.

Quick Ratio =Liquid Assets/ Current liability

0.75/1= Liquid Assets/40000

Liquid Assets =30000 .

Current Assets =Liquid Assets +Closing Inventory =30000+50000=80000.

Current Ratio = Current Assets/Current liability

Current Ratio =80000/40000=2:1.Ans.