Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Accounting Ratios

Question:

Calculate the closing inventory if the closing inventory was ₹80000 in excess of the opening inventory and cost or revenue from operations is ₹500000 and the inventory turnover ratio is 5 times.

Options:

₹40000

₹80000

₹140000

₹120000

Correct Answer:

₹140000

Explanation:

Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
5 = 500000/ average inventory
Average inventory = ₹100000
Closing inventory = 100000 + (1/2 of 80000)
                          = 100000 + 40000
                          = ₹140000