CA Inter P6 · Chapter 3 · Question 8 of 9
Ruchi Traders has sales of ₹ 30,00,000 and earns a gross profit of 25% on sales. Its inventory turnover ratio (based on cost of goods sold and average inventory) is 6 times, and closing inventory is ₹ 50,000 more than opening inventory. Closing inventory is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) ₹ 4,00,000
Explanation
Cost of goods sold = ₹ 30,00,000 x 75% = ₹ 22,50,000. Average inventory = ₹ 22,50,000 / 6 = ₹ 3,75,000. If opening = X and closing = X + 50,000, then (2X + 50,000) / 2 = ₹ 3,75,000, so X = ₹ 3,50,000 and closing inventory = ₹ 4,00,000. Dividing sales by 6 (₹ 5,00,000) is wrong because the ratio is based on cost of goods sold.
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