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Hello Sir,
Hope you are keeping well and safe!I was working on the ratio’s and in Inventory turnover period we calculate it by Avg Inventory divided by COS , so in BPP Text book , question starts with :
20X3 20X2
$m $m
Sales revenue 2,065.0 1,788.7
Cost of sales 1,478.6 1,304.0
Gross profit 586.4 484.7
Current assets
Inventories 119.0 109.0For average inventory should we calculate it by (119+109)/2 , they have considered only closing inventory, can you please further explain why ?
Thanks in adance!
If we could calculate the average inventory for both year then we would use that. However that is not possible here – we can do it for 20X3 but do not have the information for 20X2. So to be comparing like with like we use the closing inventory (as is the case for most things usually as I explain in my free lectures).
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