12th | Accounting Ratios | Question No. 71 To 75 | Ts Grewal Solution 2022-2023

Revenue from Operations  `4,00,000; Gross Profit  `1,00,000; Closing Inventory  `1,20,000; Excess of Closing Inventory over Opening Inventory  `40,000. Calculate Inventory Turnover Ratio.

Sales	= 4,00,000
Gross Profit	= 1,00,000
Cost of Goods Sold	= Sales − Gross Profit = 4,00,000 − 1,00,000  = 3,00,000
Let Opening Inventory	= x
Closing Inventory	= x + 40,000
1,20,000	= x + 40,000
x	= 80,000
Opening Inventory	= 80,000

Average Inventory= 80,000+1,20,000/2

Average Inventory= 1,00,000

Cost of Goods Sold = Revenue - Gross Profit

Cost of Goods Sold = 4,00,000 - 1,00,000=3,00,000

Inventory turnover Ratio= Cost of Goods Sold/Average inventory

 

Inventory turnover Ratio=3,00,000/1,00,000

Inventory turnover Ratio= 3 Times

From the following data, calculate Inventory Turnover Ratio:
Total Sales  `10,00,000; Sales Return  `1,00,000; Gross Profit  `1,80,000; Closing Inventory  `2,00,000; Excess of Closing Inventory over Opening Inventory  `20,000.

Cost of Goods Sold = Net Sales (Sales – Sales Return) – Gross Profit
                               =  ` 10,00,000 –  ` 1,00,000 –  ` 1,80,000

       =  ` 7,20,000

Closing Inventory =  ` 2,00,000
Closing Inventory is  ` 40,000 more than the Opening Inventory

Therefore, Opening Inventory =  ` 1,60,000 ( `2,00,000 – ` 40,000)

Average Stock	= Opening Stock + Closing Stock/2 =1,60,000+2,00,000/2=1,80,000
Stock turnover ratio	= Cost of Goods sold / Average Stock
	=7,20,000/1,80,000
	= 4 Times

 

 `2,00,000 is the Cost of Revenue from Operations (Cost of Goods Sold), during the year. If Inventory Turnover Ratio is 8 times, calculate inventories at the end of the year. Inventories at the end is 1.5 times that of in the beginning.

Inventory turnover ratio	= Cost of Goods sold / Average Inventory
8	=2,00,000/ Average Inventory
Average Inventory	= 25,000

Let Opening Inventory = x

Closing Inventory = 1.5 × x = 1.5 x

Average Inventory	= Opening Inventory + Closing Inventory /2
25,000	= x+1.5 x / 2
Or,    2.5x	=50,000
Or,         x	=20,000

Opening Inventory = x =  ` 20,000

Closing Inventory = 1.5 x = 20,000 × 1.5 =  ` 30,000

 From the following information obtained from the books of Kundan Ltd., calculate the Inventory Turnover Ratio for the years 2015-16 and 2016-17:

Particulars	2015-16 (`)	2016-17 (`)
Inventory on 31st March Revenue from Operations (Gross Profit is 25% on Cost of Revenue from Operations)	7,00,000 50,00,000	17,00,000 75,00,000

In the year 2015-16, inventory increased by `2,00,000. (Delhi and Al 2018)

 

 

It is assumed

Cost =100

Profit=25

Revenue=125

 

Gross Profit=50,00,000×25/125=10,00,000

Cost of goods sold=50,00,000-10,00,000 =40,00,000

Opening Inventory=7,00,000-2,00,000=5,00,000

Average Inventory=5,00,000+7,00,000/2=6,00,000

Inventory turnover Ratio( 2015-16)= 40,00,000/6,00,000

Inventory turnover Ratio( 2015-16)= 6.67 Time

 

Gross Profit=75,00,000×25/125=15,00,000

Cost of goods sold=75,00,000-15,00,000 =60,00,000

Average Inventory=7,00,000+17,00,000/2=12,00,000

Inventory turnover Ratio ( 2016-17)= 60,00,000/12,00,000

Inventory turnover Ratio ( 2016-17)= 5 Times

 

Calculate Inventory Turnover Ratio from the following information:
Opening Inventory  ` 40,000; Purchases  ` 3,20,000; and Closing Inventory  ` 1,20,000.
State, giving reason, which of the following transactions would (i) increase, (ii) decrease, (iii) neither increase nor decrease the Inventory Turnover Ratio:
(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.

Cost of Goods Sold = Opening Stock + Purchases + Closing Stock

= 40,000 + 3,20,000 − 1,20,000 = 2,40,000

Average Stock	= Opening Stock + Closing Stock/2 =40,000+1,20,000/2=80,000
Stock turnover ratio	= Cost of Goods sold / Average Stock
	=2,40,000/80,000
	=3 Times

(a) Sale of goods for  ` 40,000 (Cost  ` 32,000)- Increase

Reason: This transaction will decrease stock at the end (closing stock). Decrease in closing stock will result increase the proportion of Cost of Goods Sold and decrease in Average Stock

(b) Increase in value of Closing Stock by 40,000- Decrease

Reason: Increase in Closing Stock results decrease in Cost of Goods Sold and increase in Average Stock.

(c) Goods purchased for  ` 80,000- Decrease

Reason: This Transaction increases the amount of Closing Stock. Increase in Closing Stock reduces the proportion of Cost of Goods Sold and Increase in Average Stock.

(d) Purchase Return  ` 20,000- Increase

Reason: It will result decrease in Cost of Goods Sold and Average Stock with same amount.

(e) Goods costing  ` 10,000 withdrawn for personal use- Increase

Reason: Drawing of goods will decrease the amount of Closing Stock and increase in Cost of Goods Sold.

(f) Goods costing  ` 20,000 distributed as free sample- Increase

Reason: Goods distributed as free sample reduces Closing Stock. Reduction in Closing Stock will result increase in Cost of Goods Sold and decrease in Average Stock.