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CA Intermediate · Financial Management and Strategic Management · Management of Inventory

Using a 360-day year, Rohini Steels has annual cost of goods sold of Rs 7,20,000, opening inventory of Rs 1,00,000 and closing inventory of Rs 1,40,000. What is its inventory holding period based on average inventory?

The holding period is 60 days. Average inventory is Rs 1,20,000, so turnover is 7,20,000 divided by 1,20,000, or 6 times, and 360 days divided by 6 gives 60 days. Using opening or closing stock alone gives incorrect results.

  1. A50 days
  2. B60 daysCorrect
  3. C70 days
  4. D120 days

Explanation

Average inventory = (1,00,000 + 1,40,000)/2 = Rs 1,20,000. Inventory turnover = 7,20,000/1,20,000 = 6 times. Holding period = 360/6 = 60 days. Using only opening stock gives 50 days and using only closing stock gives 70 days, both wrong bases.

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