CMA Intermediate · Corporate Accounting and Auditing · Inventories (Ind AS 2)
Kapoor Retail Ltd. uses the retail method for a department. At the year end, inventory at selling price is ₹3,60,000, and the department's average gross margin is 25% on sales value. What is the inventory cost?
Under the retail method, cost is found by reducing selling price by the gross margin percentage. With sales value of ₹3,60,000 and a 25% margin, cost is ₹2,70,000.
- A₹2,70,000Correct
- B₹4,50,000
- C₹3,00,000
- D₹3,35,000
Explanation
The retail method reduces the sales value by the gross margin percentage. Cost = 3,60,000 × (1 − 0.25) = ₹2,70,000. Check: 2,70,000 + 25% of 3,60,000 (₹90,000) = ₹3,60,000. ₹4,50,000 wrongly grosses up the figure by margin.
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