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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Under the percentage of sales method, Meera Ltd has current sales of Rs 10,00,000 and inventory of Rs 2,00,000 which varies directly with sales. Sales are expected to rise to Rs 12,50,000. What will be the projected inventory?

Projected inventory is Rs 2,50,000. Inventory is 20% of sales, since 2,00,000 divided by 10,00,000 is 0.20. Applying this ratio to the forecast sales of Rs 12,50,000 gives Rs 2,50,000, because the item varies directly with sales.

  1. ARs 2,50,000Correct
  2. BRs 2,25,000
  3. CRs 2,00,000
  4. DRs 3,00,000

Explanation

Inventory is 20% of sales (2,00,000 / 10,00,000). Projected inventory = 20% x 12,50,000 = Rs 2,50,000. Rs 2,00,000 ignores the growth; Rs 2,25,000 adds only half the growth.

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