Cash Revenue from Operations (Cash Sales) Rs. 2,00,000

Credit Revenue from Operations (Credit Sales) Rs. 4,00,000

Gross Profit Rs. 1,00,000

Inventory Turnover Ratio 5 Times

Calculate the value of Opening and Closing Inventory in eash of the following alternative cases :

Case I If closing inventory was Rs. 80,000 in excess of opening inventory.

Case II If closing inventory was 3 times that in the beginnning.

Case III If closing inventory was 3 times more than that in the beginning.

Case IV If opening inventory was $\frac{1}{3}$ rd of inventory at the end.

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Solution

Cost of Revenue from Operations = Cash Revenue from Operations + Credit Revenue from Operations - Gross Profit

= Rs. 2,00,000 + Rs. 4,00,000 - Rs. 1,00,000 = Rs. 5,00,000

Inventory Turnover Ratio = $\frac{Cost of Revenue from Operations}{A v e r a g e I n v e n t o r y}$

5 (Given) $= \frac{R s . 5, 00, 000}{A v e r a g e I n v e n t o r y}$

$∴$ Average Inventory = $\frac{Rs. 5,00,000}{5} = R s . 1, 00, 000$

Case I:
Opening Inventory = Rs. 1,00,000 - $\frac{1}{2}$ of Rs. 80,000 = Rs. 60,000

Closing Inventory = Rs. 1,00,000 + $\frac{1}{2}$ of Rs. 80,000 = Rs. 1,40,000

Case II
Opening Inventory + Closing Inventory = Average Inventory $\times$ 2

= 1,00,000 $\times$ 2 = Rs. 2,00,000

Since Closing Inventory was 3 times than that in the beginning, ratio between Opening Inventory and Closing Inventory will be 1 : 3.

$∴$ Opening Inventory = Rs. 2,00,000 $\times \frac{1}{4}$ = Rs. 50,000

Closing Inventory = Rs. 2,00,000 $\times \frac{3}{4}$ = Rs. 1,50,000

Case III
Since Closing Inventory was 3 times more than that in the beginning, ratio between Opening Inventory and Closing Inventory will be 1 : 4.

$∴$ Opening Inventory = Rs. 2,00,000 $\times \frac{1}{5}$ = Rs. 40,000

Closing Inventory = Rs. 2,00,000 $\times \frac{4}{5} = R s . 1, 60, 000$

Case IV
Since Opening Inventory was $\frac{1}{3}$ rd of Closing Inventory, ratio between Opening Inventory and Closing Inventory will be 1 : 3.

$∴$ Opening Inventory = Rs. 2,00,000 $\times \frac{1}{4} = R s . 50, 000$

Closing Inventory = Rs. 2,00,000 $\times \frac{3}{4}$ = Rs. 1,50,000

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Similar questions

Q. 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.

Q. From the following Information, calculate Inventory Turnover Ratio:
Credit Revenue from Operations ₹ 3,00,000; Cash Revenue from Operations ₹ 1,00,000, Gross Profit 25% of Cost, Closing Inventory was 3 times the Opening Inventory. Opening Inventory was 10% of Cost of Revenue from Operations.

Opening Inventory Rs. 29,000; Closing Inventory Rs. 31,000; Revenue from Operations (Sales) Rs. 3,20,000; Gross Profit Ratio 25% on Revenue from Operations.
Calculate:
(i) Inventory Turnover Ratio and
(ii) Average Age of Inventory.

From the given information, calculate the following:

(i) Cost of revenue from operations.

(ii) Opening and closing inventory.

(iii) Quick assets.

(iv) Current assets.

Information :

Inventory turnover ratio 6 times, inventory at the end is Rs 6,000 more than the inventory in the beginning, revenue from operation (all credits) Rs 2,40,000 ,Gross profit 25 $%$ on cost, current liabilities Rs 80,000, quick ratio 0.80 : 1.

Q. Inventory Turnover Ratio 5 times; Cost of Revenue from Operations (Cost of Goods Sold) ₹ 18,90,000. Calculate Opening Inventory and Closing Inventory if Inventory at the end is 2.5 times more than that in the beginning.

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