Question 69 Chapter 4 of +2-B - T.S. Grewal 12 Class

Question 69 Chapter 4 of +2-B

Interest Coverage Ratio

69. Calculate Inventory Turnover Ratio from the following information:
Opening Inventory Rs. 40,000; Purchases Rs. 3,20,000; and Closing inventory Rs. 1,20,000.

State, giving reason, which of the following transactions would (i) increase, (ii)Decrease, (iii) Neither Increase nor Decrease the Inventory Turnover Ratio:

1. Sale of goods for Rs. 40,000 )cost Rs. 32,000
2. Increase in the value of closing Inventory by Rs. 40,000.
3. Goods purchased for Rs. 80,000.
4. Purchases Return Rs. 20,000.
5. Goods Costing Rs. 10,000 withdrawn for personal use.
6. Goods costing Rs. 20,000 distributed as free samples.

 

The solution of Question 69 Chapter 4 of +2-B: -

Cost of Goods of Goods Sold	=	Opening Stock +Purchases - Closing Stock
	=	Rs. 40,000 + Rs. 3,20,000 – Rs. 1,20,000
	=	Rs. 2,40,000

Average Inventory	=	Opening Inventory + Closing Inventory
		2

 

Average Inventory	=	Rs. 40,000 + Rs. 1,20,000
		2
	=	Rs. 80,000

Inventory Turnover Ratio	=	Cost of Goods of Goods Sold
		Average Stock

 

Inventory Turnover Ratio	=	Rs. 2,40,000
		Rs. 80,000
	=	3 Times

 

Transactions	Impact on Inventory Turnover Ratio	Reason
(i) Sale of goods for Rs. 40,000 (cost Rs.32,000).	Decrease	The amount of closing stock is decreasing, increase in Cost of goods sold and decrease in Average Inventory.
(ii) Increase in the value of closing Inventory by Rs. 40,000..	Decrease	There will be an increase in closing stock, the average stock is increased and a decrease in the cost of goods sold.
(iii) Goods purchased for Rs. 80,000.	Decrease	The amount of average stock is increased but the amount of cost of goods sold is decreased.
(iv) Purchases Return Rs. 20,000.	Decrease	The amount of average stock is decreased and increased in the amount of cost of goods sold.
(v) Goods Costing Rs. 10,000 withdrawn for personal use.	Increase	The amount of average stock is decreased and increased in the amount of cost of goods sold.
(vi) Goods costing Rs. 20,000 distributed as free samples.	Increase	The amount of closing stock is decreased but the increase in Cost of goods sold.

 

 

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Also, Check out the solved question of previous Chapters: -

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 - Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 - Accounting for Partnership Firms - Fundamentals
• Chapter No. 3 - Goodwill: Nature and Valuation
• Chapter No. 4 - Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 - Admission of a Partner
• Chapter No. 6 - Retirement/Death of a Partner
• Chapter No. 7 - Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 - Company Accounts -  Accounting for Share Capital
• Chapter No. 9 - Company Accounts - Issue of Debentures
• Chapter No. 10 - Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 - Financial Statements of a Company
• Chapter No. 2 - Financial Statement Analysis 
• Chapter No. 3 - Tools of Financial Statement Analysis - Comparative Statements and Common- Size Statements
• Chapter No. 4 - Accounting Ratios
• Chapter No. 5 - Cash Flow Statement

Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication