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Revenue from Operations Rs. 4,00,000; Gross Profit Rs. 1,00,000; Closing Inventory Rs. 1,20,000; Excess of Closing Inventory over Opening Inventory Rs. 40,000. Calculate Inventory Turnover Ratio.

SOLUTION

Sales 4,00,000
Gross Profit1,00,000
Cost of Goods SoldSales − Gross Profit
= 4,00,000 − 1,00,000
= 3,00,000  
Let Opening Inventory x
Closing Inventory x + 40,000
1,20,000 x + 40,000
X80,000
Opening Inventory80,000

Average Inventory =(Opening Inventory + Closing Inventory ) / 2
= (80000 +120000) / 2
= 100000

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
= 300000 / 100000
= 3

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