From the following information, calculate opening inventory.
Revenue from Operations = 4,00,000
Gross Profit Ratio = 10%
Carriage outwards = 2,000
Closing Inventory = 75,000
Purchases of stock in trade = 3,50,000
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 85,000
Gross Profit Ratio = Gross Profit/Net Revenue from Operations ×100
10 = Gross profit/400000 x 100
Gross profit = 10 x 4,00,000/100
= 40,000
Cost of goods sold = Revenue from operations - gross profit
= 4,00,000 - 40,000
= 3,60,000
Cost of goods sold = Opening inventory + purchases - closing inventory
3,60,000 = Opening inventory + 3,50,000 - 75,000
Opening inventory = 3,60,000 -3,50,000 +75,000
= 85,000
CARRIAGE OUTWARDS ARE INDIRECT EXPENSE SO NOT DEDUCTED WHILE CALCULATING COST OF GOODS SOLD.