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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
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