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4.8 Management Accounting (Section B)—ISC XII

(iv) Inventory Turnover Ratio

Cost of Revenue from Operations (Cost of Goods Sold) ` 20,00,000
= = = 10 Times.
Average Inventory ` 2,00,000

Quick Assets ( . ., Current Asssets – Inventories Prepaid Expenses)ie -
(v) Quick Ratio =
Current Liabilities

` 6,00,000 -` 2,00,000 - ` 30,000 ` 3,70,000
= = = 1.85 :1.
` 2,00,000 ` 2,00,000

Note: It has been presumed that Closing Inventory is equal to the average inventory.

Illustration 4.
Following is the Statement of Profit and Loss of Grand Canyon Ltd. for the year ended
31st March, 2019:

STATEMENT OF PROFIT AND LOSS for the year ended 31st March, 2019
Particulars Note No. `
I. Income
Revenue from Operations 5,00,000
Other Income 1 5,000
Total 5,05,000
II. Expenses
Purchases of Stock-in-Trade 3,00,000
Changes in Inventories of Stock-in-Trade 2 (20,000)
Employees Benefit Expenses 3 14,000
Finance Cost 3,000
Other Expenses 4 1,28,000
Total 4,25,000
III. Net Profit (I – II) 80,000

Notes to Accounts
1. Other Income `
Dividend 5,000
2. Changes in Inventories of Stock-in-Trade
Opening Inventories 70,000
Less: Closing Inventories 90,000
(20,000)
3. Employees Benefit Expenses
Wages 14,000
4. Other Expenses
Carriage Inwards 6,000
Administrative Expenses 1,02,000
Selling and Distribution Expenses 20,000
1,28,000