ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Zeta Co had revenue of $1,200,000 and cost of sales of $840,000 for the year. Closing inventory was $140,000. Using closing inventory, what is the inventory holding period in days (365-day year, to the nearest day)?
The inventory holding period is 61 days. Inventory is measured at cost, so it is divided by cost of sales, not revenue: 140,000 / 840,000 x 365 = 60.8 days, rounded to 61 days.
- A61 days
- B87 daysCorrect
- C44 days
- D110 days
Explanation
Inventory days = inventory / cost of sales x 365 = 140,000 / 840,000 x 365 = 60.8, which rounds to 61 days. Using revenue as the base gives 140,000/1,200,000 x 365 = 43 days, which is wrong because inventory is carried at cost.
Did you get it right without looking?
One question tells you little. A timed set on Analysis of financial statements shows your real accuracy, how long you take and where you lose marks.
More Analysis of financial statements questions
- Omega Co reports profit before interest and tax of $360,000, finance costs of $40,000, and tax of $80,000. Equity is $1,000,000 and non-curr…
- Corvo Co reports revenue of $4,500,000 and profit from operations of $540,000. Total assets less current liabilities (capital employed) were…
- Kestrel Co paid an ordinary dividend of $120,000 in the year. Profit after tax and preference dividends was $300,000. The market price per s…
- When writing a report interpreting a company's financial ratios for a user, which approach is most appropriate?
- Zeta Co has equity of $600,000 (including share capital and reserves) and 8% loan notes of $200,000. There is no preference share capital. U…
- Which of the following is a limitation of using ratio analysis to compare two companies' performance?