The average age of inventory is viewed a | Class 12 Accountancy - Company Accounts and Analysis of Financial Statements Chapter Accounting Ratios, Accounting Ratios NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Accounting Ratios. This page offers a step-by-step solution to the specific question from Exercise 1, Question 5:

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?

. With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 5:

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?

Answer:

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.

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

  • Read the question carefully and focus on the core concept being asked.
  • Reference examples and data from the chapter when answering questions about Accounting Ratios.
  • Review previous year question papers to get an idea of how such questions may be framed in exams.
  • Practice answering questions within the time limit to improve your speed and accuracy.
  • Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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Welcome to the NCERT Solutions for Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter . This page offers a step-by-step solution to the specific question from Excercise 1 , Question 5: The average age of inventory is viewed as the average length of time inventory is held by the firm o....

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