Question

From the following information, calculate opening and closing inventory: 
Gross Profit Ratio - 25% 
Revenue from operations - Rs 8,00,000 
Inventory turnover ratio - 4 times 
Opening inventory was 2 times of the closing inventory. 

Hint:

Steps for ITR problems: 1. Find Cost of Revenue from Operations (COGS) = Revenue - Gross Profit. 2. Find Average Inventory = COGS / ITR. 3. Use the relationship between Opening and Closing Inventory and Average Inventory formula: Avg Inv = (Opening Inv + Closing Inv) / 2.

Answer 1

Here's how to calculate the opening and closing inventory step-by-step:

1. Calculate the Cost of Revenue (Cost of Goods Sold - COGS):
- Gross Profit = Revenue from Operations * Gross Profit Ratio
- Gross Profit = Rs. 8,00,000 * 25% = Rs. 2,00,000
- Cost of Revenue (COGS) = Revenue from Operations - Gross Profit
- COGS = Rs. 8,00,000 - Rs. 2,00,000 = Rs. 6,00,000

2. Calculate the Average Inventory:
- Inventory Turnover Ratio = Cost of Revenue / Average Inventory
- 4 = Rs. 6,00,000 / Average Inventory
- Average Inventory = Rs. 6,00,000 / 4 = Rs. 1,50,000

3. Set up Equations for Opening and Closing Inventory:
Let:
- Closing Inventory = X
- Opening Inventory = 2X (Given: Opening inventory was 2 times the closing inventory)

Therefore:
- Average Inventory = (Opening Inventory + Closing Inventory)/2

Substitute with the given value:
Rs. 1,50,000 = (2X + X)/2
Rs. 1,50,000 = (3X)/2
3X = Rs. 1,50,000 * 2
X = Rs. 3,00,000/3
X = Rs. 1,00,000

4. Calculate the Opening and Closing Inventory:
- Closing Inventory (X) = Rs. 1,00,000
- Opening Inventory (2X) = 2 * Rs. 1,00,000 = Rs. 2,00,000

Answer:
- Opening Inventory: Rs. 2,00,000
- Closing Inventory: Rs. 1,00,000