Question 95 (Calculation of Revenue from Operations)

95 :– The average inventory of AB Ltd. Is Rs 1,00,000 and the Inventory Turnover Ratio is 6 times. Calculate the amount of Revenue from Operations if goods are sold at a profit of 25% on Revenue from Operations.

Solution :-

Calculation of the amount of Revenue from Operations
Let the Revenue from Operation be x
Gross Profit = Revenue from Operations – Cost of Goods Sold
25x/100 = x – 6,00,000
x – 25x/100 = 6,00,000
75x/100 = 6,00,000

Revenue from Operations (x) = 6,00,000 x 100/75
= Rs 8,00,000

Calculation of the amount of Cost of Goods Sold
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
6 = Cost of Goods Sold/1,00,000
Cost of Goods Sold = 1,00,000 x 6
= Rs 6,00,000