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Accounting Ratios — Accountancy STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceAccountancyAccounting Ratios3 Marks
Question
Calculate Inventory Turnover Ratio from the data given below:
 
₹
 
₹
Inventory in the beginning of the year.
20,000
Carriage Inwards.
5,000
Inventory at the end of the year.
10,000
Revenue from Operations, i.e., Sales.
1,00,000
Purchases.
50,000
 
 
State the significance of this ratio.
✓

Answer

Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards - Closing Stock
= 20,000 + 50,000 + 5,000 - 10,000 = 65,000
Average Inventory $=\frac{\text{Opening Stock+Closing Stock}}{2}$
$=\frac{20,000+10,000}{2}=15,000$
Inventory Turnover Ratio $=\frac{\text{Cost of Good Sold}}{\text{Avarage Stock}}$
$=\frac{65,000}{15,000}=4.33\text{ time}$

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