Page No 4.111:
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` 10,000 withdrawn for personal use.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.
Answer:
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(e) Goods costing ` 10,000 withdrawn for personal use- Increase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.
Page No
4.111:
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).
Answer:
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
Page No
4.111:
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.
Answer:
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
Page No 4.111:
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.
Answer:
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 |
Page No
4.111:
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 |
|
|
|
Answer:
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
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