From the following information obtained from the books of kundan ltd, claculate the inventory turnover ratio for the years 2015-16 and 2016-17: ltvbrgt

Explanation

Inventory Turnover Ratio = `("Cost of Revenue from operations")/("average Inventory")`
For 2015-16:
cost of revenue from opertions = revenue from operations-gross profit
=Rs 500000=Rs 10000000=Rs 4000000
Average Inventory =`("Opening Inventory+Closing Inventory")/(2)`
`=(Rs 500000+Rs 7000000)/(2)=Rs 600000`
therefore Inventory Turnover Ratio = `(Rs 4000000)/(Rs 600000)=6.67 Times`
Let the cost =Rs 100 Gross profit =Rs 25
Sales =cost + profit =Rs 100 +Rs25-Rs125
therefore Gross profit on sale (Revenue form operations) `=Rs 25//Rs125 or 1//5th` of the sale Gross profit =`Rs 5000000xx1//5=Rs 1000000`
cost of revenue from operations=Revenue from operations=Gross profit
`=Rs 7500000-Rs 15000000(i.e Rs 7500000xx1//5)`
Rs 6000000
Average Inventory=`("opening Inventory+closing Inventory")/(2)"`
`=(Rs 700000+Rs 1700000)/(2)=Rs 1200000`
therefore Inventory Turnover Ratio `=(Rs 6000000)/(Rs 1200000)=5` Times