Question 77 Chapter 4 of +2-B - T.S. Grewal 12 Class

Question 77 Chapter 4 of +2-B

Interest Coverage Ratio

77. Calculate Inventory Turnover Ratio in each of the following alternative
cases:
Case 1: Cash Sales 25% of Credit Sales; Credit Sales 3,00,000; Gross Profit
20% on Revenue from Operations, i.e., Net Sales; Closing Inventory 1,60,000; Opening Inventory 40,000.
Case 2: Cash Sales 20% of Total Sales; Credit Sales 4,50,000; Gross Profit
25% on Cost; Opening Inventory 37,500; Closing Inventory 1,12,500.

The solution of Question 77 Chapter 4 of +2-B: -

Case I:

 

Credit Sales	=	Rs. 3,00,000
Cash Sales	=	@25% of Credit Sales
	=	Rs. 3,00,000 x 25%
Cash Sales	=	Rs. 75,000
Total Sales	=	Cash Sales + Credit Sales
	=	Rs. 3,00,000 + Rs. 75,000
	=	Rs. 3,75,000
Gross Profit	=	Rs. 3,75,000 x 20%
	=	Rs. 75,000
Cost of Goods Sold	=	Total Sales – Gross Profit
	=	Rs. 3,75,000 - Rs. 75,000
	=	Rs. 3,00,000

 

Inventory Turnover Ratio	=	Opening Inventory + Closing Inventory
		Average Inventory

Inventory Turnover Ratio	=	Rs. 40,000 + Rs. 1,60,000
		2
	=	Rs. 1,00,000

Inventory Turnover Ratio	=	Cost of Goods Sold
		Average Inventory

Inventory Turnover Ratio	=	Rs. 3,00,000
		Rs. 1,00,000
	=	3 Times

Case II:

Total Sales	=	X
Cash Sales	=	X x 20/100
Cash Sales	=	20x/100
Total Sales	=	Cash Sales + Credit Sales

 

X	=	20x	+Rs.4,50,000
		100

 

100x	=	20x + Rs. 4,50,00,000
100x – 20x	=	Rs. 4,50,00,000

 

X	=	Rs. 4,50,00,000
		80
x	=	Rs. 5,62,500

Cost of Goods Sold = y

Gross Profit	=	Y   X	25
			100

 

=	25y
	100

 

25y	=	Rs. 5,62,500 - y
100

Y+	25y	=	Rs. 5,62,500
	100

 

125y	=	Rs. 5,62,500
100

Y	=	Rs. 5,62,00,000
		125
Y	=	Rs. 4,50,000

Cost of Goods Sold = Rs. 4,50,000

Average Inventory	=	Opening Inventory + Closing Inventory
		2

 

Average Inventory	=	Rs. 37,500 + Rs. 1,12,500
		2
	=	Rs. 75,000

 

Inventory Turnover Ratio	=	Cost of Goods Sold
		Average Inventory

 

Inventory Turnover Ratio	=	Rs. 4,50,00
		Rs. 75,000
	=	6 Times

 

 

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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