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CMA Intermediate · Corporate Accounting and Auditing · Inventories (Ind AS 2)

Sharma Retail Ltd uses the retail method. Inventory at selling price is ₹6,00,000 and the appropriate gross margin is 25% on selling price. Ignoring markdowns, the cost of the inventory is:

Cost is ₹4,50,000. Under the retail method, the cost of inventory is determined by reducing sales value by the appropriate percentage gross margin. With a 25% margin on selling price of ₹6,00,000, cost is 75% of that amount, which is ₹4,50,000.

  1. A₹4,50,000Correct
  2. B₹4,80,000
  3. C₹7,50,000
  4. D₹1,50,000

Explanation

Cost is found by reducing sales value by the gross margin percentage: 6,00,000 × (1 − 0.25) = ₹4,50,000. Check: 4,50,000 / 6,00,000 = 75%. The ₹4,80,000 option wrongly takes 20% off, treating margin as a percentage of cost.

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