# An extract from Gupta & Co. reveals the following: (a) Inventory turnover ratio (b) Accounts recievable turnover ratio

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An extract from Gupta & Co. reveals the following:

 Inventory as on 1st July, 2014 23,500 Purchases 2,23,000 Inventory as on 30 June 2015 21,500 Sales (all credit) 8,21,250 Accounts Receivable balance as on 30 June 2015 1,57,500

Calculate:

(a) Inventory turnover ratio

(b) Accounts recievable turnover ratio

(c) Collection Period

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(a) Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory

Where, Cost of Goods Sold = opening stock + purchases – closing stock

= 23,500 + 2,23,000 – 21,500 = Rs.2,25,000

And Average Inventory = (Opening stock + closing stock) / 2

= (23,500 + 21,500) /2 = Rs. 22,500

Inventory Turnover Ratio = (Rs.2,25,000 / Rs. 22,500)

= 10 times

(b) Accounts Receivable Turnover Ratio = Credit Sales / Average Accounts Receivable

= (8,21,250 / 1,57,500)

= 5.214

(c) Collection Period = Days in a year / Debtors’ turnover ratio

= (365 / 5.124)

= 71.23 days

= 72 days approx.