Question

$\begin{array}{c}\\ \text{STATEMENT OF PROFIT AND LOSS}\\ fortheyearended31stMarch,2018\end{array}\begin{array}{cccc}& \text{Particulars}& \text{Note}& \text{Rs.}\\ & & \text{No.}& \\ \text{I.}& \text{Revenue from Operations (Sales)}& & 8,00,000\\ \text{II.}& \text{Other Income}& & 25,000\\ \text{III.}& \text{Total Revenue (I + II)}& & \underset{–}{\overline{8,25,000}}\\ & & & \\ \text{IV}& \text{Expenses :}& & \\ & \text{Puchase of Stock in Trade}& & 5,40,000\\ & \text{Change in Inventories of Stock in Trade}& 1& 20,000\\ & \text{Employee Benefit Expenses}& & 90,000\\ & \text{Depreciation and Amortization Exp.}& & 15,000\\ & \text{Other Exp.}& & 10,000\\ & \text{Total Expense}& & \underset{–}{\overline{6,75,000}}\\ \text{V.}& \text{Profit before Tax (III-IV)}& & 1,50,000\\ & \text{Less : Tax}& & 30,000\\ \text{VI.}& \text{Profit after Tax}& & \overline{\underset{–}{1,20,000}}\end{array}$

Notes to Accounts :

$\begin{array}{ccc}& \text{Particualars}& \text{Rs.}\\ 1.& \text{Change in Inventories of Stock in Trade :}& \\ & \text{Openting Inventory}& \text{80,000}\\ & \text{Less : Closing Inventory}& \text{60,000}\\ & & \overline{\underset{–}{20,000}}\end{array}$

Answer 1

$\text{Inventory Turnover Ratio}=\frac{\text{Cost of Revenue from Operations (Cost of Goods Sold)}}{AverageInventory}$

Cost of Revenue from Operation = Purchase of Stock in Trade + Change in Inventory of Stock in Trade

= Rs. 5,40,000 + Rs. 20,000 = Rs. 5,60,000

$\text{Average Inventory}=\frac{OpeningInventory+ClosingInventory}{2}$

$=\frac{Rs.80,000+Rs.60,000}{2}$ = Rs. 70,000

$\text{Inventory Turnover Ratio}=\frac{Rs.5,60,000}{Rs.70,000}=8\text{times}$.