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3.30 Analysis of Financial Statements—CBSE XII
Illustration 26.
From the following Statement of Profit & Loss of Business Machines Ltd., calculate Inventory
Turnover Ratio:
STATEMENT OF PROFIT & LOSS
for the year ended 31st March, 2024
Particulars Note No. `
I. Revenue from Operations 10,00,000
II. Other Income 50,000
III. Total Revenue (I + II) 10,50,000
IV. Expenses:
Purchases of Stock-in-Trade 5,00,000
Change in Inventory of Stock-in-Trade 1 25,000
Employees Benefit Expenses 1,20,000
Depreciation and Amortisation Expenses 5,000
Other Expenses 20,000
Total Expenses 6,70,000
V. Profit before Tax (III – IV) 3,80,000

Note to Accounts
Particulars `
1. Change in Inventory of Stock-in-Trade
Opening Inventory 1,00,000
Less: Closing Inventory 75,000
25,000

Solution: Inventory Turnover Ratio
Cost of Revenue from Operations (Cost of Goods Sold) ` 5,25,000
= = = 6 Times.
Average Inventory ` 87,500
Cost of Revenue from Operations (Cost of Goods Sold)
= Purchases of Stock-in-Trade + Change in Inventories of Stock-in-Trade
= ` 5,00,000 + ` 25,000 = ` 5,25,000.
Opening Inventory  Closing Inventory ` 1,00,000  75,000
`
Average Inventory = =
2 2
= ` 87,500.
Note: Direct Expenses are not given, hence they are presumed to be nil.

Illustration 27.
A trader carries an Average Inventory of ` 75,000. His Inventory Turnover Ratio is 12 times.
Find out his profit, if he sells at a profit of 20% on sales. (Foreign 2004)

Solution:
Profit = Sales – Cost of Revenue from Operations (Cost of Goods Sold)
= ` 11,25,000 – ` 9,00,000 = ` 2,25,000.