CMA Study Group

Need clarification using average or not

  • 1.  Need clarification using average or not

    Posted 24 days ago
      |   view attached
    Sir,
    Pfa photograph

    My question is while calculating difference on days sale in inventory between prior year and current year 
    Whether to use average inventory or that period inventory only????




  • 2.  RE: Need clarification using average or not

    Posted 20 days ago
    Hi Munavarsha,

    Thumb Rule: whenever ratio analysis includes one item from P&L and another from B/S. Always use average for B/S item. So in the case of Inventory turnover ratio, the formula is

    COGS divided by Average inventory

    COGS is P&L items and Inventory is B/S item. hence always use average inventory ( if prior year and current year information is provided)

    Thanks,
    Kiran

    ------------------------------
    Kiran Kulkarni
    Director/Manager
    ------------------------------



  • 3.  RE: Need clarification using average or not

    Posted 19 days ago
    But they didn't use avg for inventory turnover ratio,for calculating the difference between prior and current period inventory days,
    So is there any exceptions for this thumb rule






  • 4.  RE: Need clarification using average or not

    Posted 15 days ago
    Yes you need calculate average inventory for day's sales when the question provides with two different years..

    ------------------------------
    Shriya Nagamani Choudary Vundavalli
    Student
    Chennai
    India
    ------------------------------