# 12th | Ts grewal 2021-2022 Question 76 to 80 | ch:4 Accounting Ratios

#### Question 76:

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` 10,000 withdrawn for personal use.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(e) Goods costing  ` 10,000 withdrawn for personal use- Increase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

#### Question 77:

Following figures have been extracted from Shivalika Mills Ltd.:

Inventory in the beginning of the year  ` 60,000.
Inventory at the end of the year
` 1,00,000.
Inventory Turnover Ratio 8 times.
Selling price 25% above cost.

Compute amount of Gross Profit and Revenue from Operations (Net Sales).

Average Inventory= Opening Inventory +Closing Inventory/2

=60,000+1,00,000/2=80,000

Inventory tunover ratio= Cost of goods sold / Average Stock

8 = Cost of goods sold / 80,000

Cost of goods sold=6,40,000

Gross Profit = 25% on Cost

Gross profit =6,40,000×25/100=1,60,000

Sales = Cost of Goods Sold + Gross Profit

= 6,40,000 + 1,60,000 = 8,00,000

#### Question 78:

From the following Information, calculate Inventory Turnover Ratio:
Credit Revenue from Operations
` 6,00,000; Cash Revenue from Operations  ` 2,00,000, Gross Profit 25% of Cost, Closing Inventory was 3 times the Opening Inventory. Opening Inventory was 10% of Cost of Revenue from Operations.

Average Inventory=60,000+1,80,000/2= ` 1,20,000

Opening Inventory=6,00,000×10%= ` 60,000

Closing Inventory=60,000×3= ` 1,80,000

Cost of Revenue from Operations=Revenue from Operations-Gross Profit

=8,00,000-2,00,000= ` 6,00,000

Inventory Turnover Ratio=Cost of Revenue from OperationsAverage Inventory

=6,00,000/1,20,000=5 Times

#### Question 79:

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.

Case 1

Credit Sales = 3,00,000

Cash sales = 25% of Credit Sales

Cash Sales=3,00,000×25/100=75,000

Total Sales = Cash Sales + Credit Sales

= 3,00,000 + 75,000 = 3,75,000

Gross Profit = 20% on Sales

Gross profit=375000×20/100=75000

Cost of Goods Sold = Total Sales − Gross Profit

= 3,75,000 − 75,000 = 3,00,000

 Average Stock = Opening Stock + Closing Stock/2 =40,000+1,60,000/2=1,00,000 Stock turnover ratio = Cost of Goods sold / Average Stock =3,00,000/1,00,000 =3 Times

Case 2

Let Total Sales = x

Cash sales =Total sales×20/100

Cash sales =X×20/100=20X/100

Total Sales = Cash Sales + Credit Sales

X=20X/100+4,50,000

Or, X-20X/100=4,50,000

Or , 80X/100=4,50,000

Or , X=5,62,500

Gross Profit =a×25/100=25a/100

Gross Profit = Sales − Cost of Goods Sold

25a/100=5,62,500-a

Or a+/100=5,62,500

Or 125a/100=5,62,500

Or, a= 4,50,000

Cost of goods sold = a= 4,50,000

 Average Stock = Opening Stock + Closing Stock/2 =37,000+1,32,500/2=75,000 Stock turnover ratio = Cost of Goods sold / Average Stock =4,45,000/75,000 =6 Times

#### Question 80:

From the following Statement of Profit and Loss for the year ended 31st March, 2021 of Rex Ltd., calculate Inventory Turnover Ratio:

 STATEMENT OF PROFIT AND LOSS for the year ended 31st March, 2021 Particulars Note No. Amount ( `) I. Revenue from Operations (Net Sales) 6,00,000 II. Expenses: (a) Purchases of Stock-in-Trade 3,00,000 (b) Change in Inventory of Stock-in-Trade 1 50,000 (c) Employees Benefit Expenses 60,000 (d) Other Expenses 2 45,000 Total Expenses 4,55,000 III. Profit before Tax (I-II) 1,45,000 IV. Less: Tax 45,000 V. Profit after Tax (III-IV) 1,00,000

Notes to Accounts

 Particulars Amount ( `) I. Change in Inventory of stock-in-Trade Opening Inventory 1,25,000 Less: Closing Inventory 75,000 50,000 2. Other Expenses Carriage Inwards 15,000 Miscellaneous Expenses 30,000 45,000

Cost of Goods Sold = Opening Inventory+ Purchases + Direct Expenses – Closing Inventory
=
` 1,25,000 +  ` 3,00,000 +  ` 15,000 –  ` 75,000 =  ` 3,65,000
Average Stock = Opening Stock + Closing Stock/2

Average Stock =1,25,000+75,000/2=2,00,000/2

Average Stock =1,25,000+75,000/2

Average Stock =1,00,000

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

Inventory Turnover Ratio = 3,65,000/1,00,000

Inventory Turnover Ratio =3.65 times