Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Accounting Ratios NCERT Solutions | The average age of inventory is viewed a
The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days’ sales in inventory. Why?
Inventory Turnover Ratio: This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio/inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm isable to manage its inventory. The formula for calculating inventory turnover ratio is as follows:
Inventory Turnover Ratio = Cost of goods sold
Average Inventory at Cost
Cost of goods sold = Opening Stock + Purchase + Direct Expenses - Closing Stock
Alternatively cost of goods sold = Net Sales - Gross Profit
Average Inventory = Opening Stock + Closing Stock
2
From the above formula, it is clear that this ratio reveals the average length of
time for which the inventory is held by the firm.
More Questions From Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Accounting Ratios
- Q:-
The current ratio provides a better measure of overall liquidity only when a
firm’s inventory cannot easily be converted into cash. If inventory is liquid, the
quick ratio is a preferred measure of overall liquidity. Explain. - Q:-
The liquidity of a business firm is measured by its ability to satisfy itslong-
term obligations as they become due. What are the ratios used forthis purpose? - Q:-
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
What are liquidity ratios? Discuss the importance of current and liquid ratio.
- Q:-
What are various types of ratios?
- Q:-
What do you mean by Ratio Analysis?
- Q:-
How would you study the Solvency position of the firm?
- Q:-
What are important profitability ratios? How are these worked out?
Popular Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:- What is meant by a Debenture?
- Q:-
List the techniques of Financial Statement Analysis.
- Q:-
State the meaning of financial statement analysis?
- Q:-
What does a Bearer Debenture mean?
- Q:-
Distinguish between Vertical and Horizontal Analysis of financial data.
- Q:-
What are limitations of financial statement analysis?
- Q:-
State the meaning of ‘Debentures issued as a collateral security’.
- Q:-
State the meaning of Analysis and Interpretation.
- Q:-
List any three objectives of analysing financial statements?
- Q:-
What is meant by ‘Issue of debentures for consideration other than cash’?
Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:-
Describe the steps for creating Sinking Fund for redemption of debentures.
- Q:- What is meant by a Debenture?
- Q:-
What is meant by redemption of debentures?
- Q:-
State the importance of Financial Analysis?
- Q:-
Distinguish between Vertical and Horizontal Analysis of financial data.
- Q:-
How would you deal with ‘Premium on Redemption of Debentures?
- Q:-
What is meant by a ‘Irredeemable Debenture’?
- Q:-
Can the company purchase its own debentures?
- Q:-
Explain the process of preparing income statement and balance sheet.
- Q:-
What is discount on issue of debentures?
- All Chapters Of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- All Subjects Of Class 12