Calculate the closing inventory if the closing inventory was ₹80,000 in excess of the opening inventory and cost of revenue from operations is ₹5,00,000 and the inventory turnover ratio is 5 times.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹1,40,000.
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
5 = 5,00,000/ average inventory
Average inventory = ₹1,00,000
The closing inventory was ₹80,000 in excess of the opening inventory.
Let opening inventory = x
Closing inventory = x + 80,000
Average inventory = (Opening inventory + Closing inventory)/2
= ( x + x + 80,000)/2
= x + 40,000
1,00,000 = x + 40,000
x = 60,000
Closing inventory = 60,000 + 80,000
= ₹1,40,000