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

Question 69 Chapter 4 of +2-B

Table of Contents

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

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

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

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:

Sale of goods for Rs. 40,000 )cost Rs. 32,000
Increase in the value of closing Inventory by Rs. 40,000.
Goods purchased for Rs. 80,000.
Purchases Return Rs. 20,000.
Goods Costing Rs. 10,000 withdrawn for personal use.
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
Average Inventory	=	2
	=	Rs. 80,000

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

Inventory Turnover Ratio	=	Rs. 2,40,000
Inventory Turnover Ratio	=	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(v) Goods Costing Rs. 10,000 withdrawn for personal use.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.