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Question
Calculate Inventory Turnover Ratio in each of the following alternative cases:
Case 1: Cash Sales 25% of Credit Sales; Credit Sales ₹3,00,000; Gross Profit 20% on Revenue from Operations, i.e., Net Sales; Closing Inventory ₹1,60,000; Opening Inventory ₹40,000.
Case 2: Cash Sales 20% of Total Sales; Credit Sales ₹4,50,000; Gross Profit 25% on Cost; Opening Inventory ₹37,500; Closing Inventory ₹1,12,500.
Solution
Case 1
Credit Sales = 3,00,000
Cash sales = 25% of Credit Sales
∴ Cash Sales = `300000 xx 25/100 = 75000`
Total Sales = Cash Sales + Credit Sales
= 3,00,000 + 75,000 = 3,75,000
Gross Profit = 20% on Sales
∴ Gross Profit = `375000 xx 20/100 = 75000`
Cost of Goods Sold = Total Sales − Gross Profit
= 3,75,000 − 75,000 = 3,00,000
Average Stock = `("Opening Stock + Closing Stock")/2`
`=(40000 + 160000)/2 = 100000`
Inventory Turnover Ratio=`"Cost of goods Sold"/"Average Stock"`
`= 300000/100000` = 3 times
Case 2
Let Total Sales = x
Cash sales = `"Total Sales" xx 20/100`
Cash Sales = `x xx 20/100 = (20x)/100`
Total Sales = Cash Sales + Credit Sales
`x = (20x)/100 + 450000`
or, `x - (20x)/100 = 450000`
or, `(80x)/100 = 450000`
or,x = 562500
Let cost of goods sold = a
Gross Profit = `a xx 25/100 = (25a)/100`
Gross Profit = Sales − Cost of Goods Sold
`(25a)/100 = 562500 - a`
or, `a + (25a)/100 = 562500`
or, `(125a)/100` = 562500
or, a=450000
Cost of goods sold = a = 450000
Average Stock
= `("Opening Stock + Closing Stock")/2`
`= (37500 + 112500)/2` = 75000
Stock turnover Ratio =`"Cost of goods Sold"/"Average Stock"`
= `450000/75000 = 6 "times"`
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|
Particulars |
₹ |
|
| I. EQUITY AND LIABILITIES | ||
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1. Shareholder's Funds |
||
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(a) Share Capital: |
||
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(i) Equity Share Capital |
5,00,000 |
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(ii) 10% Preference Share Capital |
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(b) Reserves and Surplus |
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2. Non-Current Liabilities |
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Long-term Borrowings (Debentures) |
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|
|
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|
|
Total |
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|
| II. ASSETS | ||
|
1. Non-Current Assets |
||
|
Fixed Assets: |
||
|
(i) Tangible Assets |
6,40,000 |
|
|
(ii) Intangible Assets |
1,00,000 |
|
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2. Current Assets |
||
|
(a) Inventories |
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|
|
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|
|
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|
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Total |
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