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WHILE CALCULATING STOCK TURN RATIO WHY WE TAKE AVARAGE
STOCK
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Answer / h.r. sreepada bhagi
First of all it's 'Stock Turnover Ratio" and not 'Stock
Turn Ratio'.
Since the stock volume & value changes frequently over the
course of business during the year, calculation of this
ratio on the basis of opening stock or closing stock would
not serve as the right basis. So a more reasonable analysis
is possible by calculation this ratio based on average stock
holding. There are possibilities of huge variations in the
stock holding based on seasonal demands, nature of industry,
products, growth of the business, etc.
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please answer this question.the following balances were extracted from the books of modern traders on 31st dec,2010.capital(85000)fixed assets(45000)stock1-1-2010(15000)sundry debtors(20600)productive exp(3300)reserves fund(6600)discount received(800)cash in hand(6200)drawing(5000)accomulated dep.(9000)purchases(82000)bad debts(400)unproductive exp.(27400)sundry creditors(9000)sales(120000)cash at bank(25500).adjustments.stock on 31-12-2010(15000).outstanding wages (5000) write-off (600)of further bad debts. create provision for bad & doubtful debts at {5%) on debtors.unproductive expenses includes anitem of prepaid insurance (100).provide depreciation on original cost of fixed assets @ (10%).
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