Study the information given below carefully and answer the following question.
| Particulars | 2020 (Amount in ₹) |
2019 (Amount in ₹) |
2018 (Amount in ₹) |
| Outstanding Expenses | 50,000 | 40,000 | 25,000 |
| Prepaid Expenses | 3,00,000 | 2,50,000 | 3,50,000 |
| Trade Payables | 18,00,000 | 16,00,000 | 14,00,000 |
| Inventory | 12,00,000 | 10,00,000 | 11,00,000 |
| Trade Receivables | 11,00,000 | 8,00,000 | 10,00,000 |
| Cash In hand | 17,00,000 | 12,00,000 | 15,00,000 |
| Revenue from Operations | 24,00,000 | 18,00,000 | 20,00,000 |
| Gross Profit Ratio | 12% | 15% | 18% |
Inventory turnover ratio for the year 2020 will be:
Answer & explanation
Correct answer: option 4
The correct answer is option 4- 1.92 times.
Gross profit ratio = Gross profit/ Revenue from operations x 100
12 = Gross profit/24,00,000 x 100
Gross profit = 12 x 24,00,000/100
= 2,88,000
Cost of Revenue = Revenue from operations - Gross profit
= 24,00,000 - 2,88,000
= 21,12,000
Closing inventory of 2019 becomes the opening inventory of 2020.
Average Inventory = (Opening inventory + closing inventory)/2
= (12,00,000 + 10,00,000)/2
= 11,00,000
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
= 21,12,000/11,00,000
= 1.92 times