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Question number 462 on kaplan F2 exam kit (Sep 19 – Aug 2020) (a) you need to find out inventory holding period for the year.
Bank Overdraft – 40,500
Revenue – 343,275
Cost of sales – 284,000
Purchases – 275,000
Receivables – 37,400
Payables – 35,410Answer is closing inventory/cost of sales x 365
Shouldn’t using average inventory make more sense?
I do not have the Kaplan exam kit (only the BPP Revision Kit).
However, although there is a logic in using the average inventory it is only possible if we are given both the opening and closing inventories. In addition, because the purpose of calculating the inventory turnover in practice is so as to be able to compare with the previous year, we would need the opening and closing inventories for both year.
As a result it is more normal to use the closing inventory and in the exam use the closing inventory (unless the question specifically says to do differently) 🙂
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