88 :- From the following information obtained from the books of Kundan Ltd., calculate the Inventory Turnover Ratio for the years 2015–16 and 2016–17;
In the year 2015 – 16, inventory increased by Rs 2,00,000.
Solution :-
2015 – 16
Opening Inventory = Rs 5,00,000
Closing Inventory = Rs 7,00,000
Gross Profit = Revenue from Operations – Cost of Goods Sold
25/100 x COGS = 50,00,000 – COGS
1.25 COGS = 50,00,000
COGS = Rs 40,00,000
Average Inventory = Opening Inventory + Closing Inventory/2
= 5,00,000 + 7,00,000/2
= Rs 6,00,000
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
= 40,00,000/6,00,000
= 6.666…. Times
= 6.67 Times
2016 – 17
Opening Inventory = Rs 7,00,000
Closing Inventory = Rs 17,00,000
Average Inventory = Opening Inventory + Closing Inventory/2
= 7,00,000 + 17,00,000/2
= Rs 12,00,000
Gross Profit = Revenue from Operations – Cost of Goods Sold
25/100 COGS = 75,00,000 – COGS
(25/100 + 1) COGS = 75,00,000
COGS = 75,00,000 x 100/125
Cost of Goods Sold = Rs 60,00,000
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
= 60,00,000/12,00,000
= 5 Times