Calculate the opening inventory if the closing inventory was ₹80,000 in excess of the opening inventory and cost or revenue from operations is ₹5,00,000 and the inventory turnover ratio is 5 times.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- ₹60,000.
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
5 = 5,00,000/ Average inventory
Average inventory = ₹1,00,000
Let opening inventory is Z.
So, closing inventory = Z + 80,000
Average inventory = (Opening + closing)/2
1,00,000 = (Z + Z+ 80,000)/2
1,00,000 = (2Z + 80,000)/2
1,00,000 = Z + 40,000
Z = 60,000
Opening inventory = ₹60,000