Question

What is the accounting treatment of ‘Stores and Spares’ when the Company will calculate its Inventory Turnover Ratio?

Answer 1

Loose tools and stores and spares are part of CURRENT ASSETS (Inventory)
1. Current ratio = current assets ÷ current liabities
2. Inventory turnover ratio = COGS ÷ average inventory
3. Working capital = Current assets ÷ current liabilities
4. working capital turnover ratio = net sales ÷ working capital
5. COGS = net sales - gross profit


What will be the treatment of Loose Tools/Spares and Stores while calculating the following :-

1. Current Ratio
2.Inventory Turnover Ratio
3.Working Capital
4.Working Capital Turnover
5.Cost of Goods Sold

Answer 2

stores and spares its treated as inventory . therefore its  classified  as non current asset .
inventory turnover ratio = cost of goods sold / average inventory 
average inventory = opening stock + closing stock /2