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Accounting Ratios 3.13
Cost of Revenue from Operations
Solution: Inventory Turnover Ratio =
Average Inventory
` 3,75,000
= = 5.36 Times.
` 70,000
Cost of Revenue from Operations = Purchases of Stock-in-Trade + Change in
Inventories of Stock-in-Trade + Direct Expenses
(i.e., Wages + Carriage Inwards)
= ` 3,00,000 + ` 60,000 + ` 10,000 + ` 5,000 = ` 3,75,000.
Opening Inventory + Closing Inventory
Average Inventory =
2
` 1,00,000 ` 40,000
= ` 70,000 .
2
Illustration 8.
From the following Statement of Profit & Loss, calculate Inventory Turnover Ratio:
STATEMENT OF PROFIT & LOSS for the year ended 31st March, 2024
Particulars Note No. `
I. Revenue from Operations 50,00,000
II. Other Income 1,00,000
III. Total Revenue (I + II) 51,00,000
IV. Expenses:
Cost of Materials Consumed 18,00,000
Changes in Inventories of Finished Goods and Work-in-Progress 1 (1,00,000)
Employee Benefit Expenses 7,00,000
Finance Costs 1,00,000
Depreciation and Amortisation 50,000
Other Expenses 2 6,50,000
Total Expenses 32,00,000
V. Profit before Tax (III – IV) 19,00,000
VI. Tax Expenses: Current Tax 5,00,000
VII. Profit after Tax (V – VI) 14,00,000
Notes to Accounts
Particulars `
1. Changes in Inventories of Finished Goods and Work-in-Progress
Opening 2,00,000
Less: Closing 3,00,000
(1,00,000)
2. Other Expenses
Direct Carriage Inwards, Octroi, etc. 3,00,000
Indirect General and Administration Expenses 3,50,000
6,50,000