Inventory is normally the largest current asset shown on the

Inventory is normally the largest current asset shown on the balance sheet of a merchandising and manufacturing company. Companies can utilize the perpetual or the periodic inventory method to record their inventory transactions. They also have a choice in the method used to determine the amount of cost of goods sold reported on the income statement. Use the internet to locate the annual report of a public corporation 1. Identify the name of the company you have chosen 2. Review the balance sheet and income statement. 3. What is the amount shown in the Inventory Account? The Inventory Account represents what percentage of the total current assets of the company? 4. Continue your review of the income statement. 5. What is the amount of cost of goods sold listed on the Income Statement?

Solution

1) ITC Limited Report and Accounts 2017.

2) ITC Limited has many other subsidiary companies hence it has prepared Financial statements for ITC Ltd and a A Consolidated Financial Statement. ITC limited\'s Financial statement has four parts in particular, Balance Sheet, Statement of profit and loss, Statement of changes in equity and a Cash flow statement. ITC Limited has prepared all those statement in consolidated form also.

ITC limited\'s Balance sheet shows the particulars in statement form having three column showing particulars as on 31st march 2017, 31st march 2016 and 1st April 2015. All the amounts are denominated in Indian Rupees and in Crores. Total asset is being segregated in two parts - Non Current assets and Current Assets. Total liability is also being segregated into Equity and Current Liabilities.

3) Rupees 8,671.10 Crores is shown in the Consolidated financial statement as Inventory as on 31st March 2017.

4) Total Current assets of the company as on 31st March 2017 as per consolidated balance sheet =26,269.10 Crore

Therefore Percentage of inventory account on Total current assets = 8671.10/26269.10 X 100 = 33.008%

5) Cost of goods sold as per Consolidated statement of profit and loss:

Cost of materials consumed + Purchase of Stock in Trade + Change in Inventory+ED+Employee benifit expenses

= 11979.03+3477.56+592.57+15927.91+3631.73 = Rupees 35,608.80 Crores.

6) They have chosen the perpetual inventory system and for inventory valuation they considered Weighted average method and the end inventory is valued at book value or realizable value whichever is lower.

7) Opening Inventory = 6621.78

Closing Inventory = 8671.10

Average Inventory = 6621.78+8671.10 X 1/2 = 7646.44

  ?Inventory turnover ratio = COGS/Avg. Inventory

?    = 35608.80/7646.44 Times

    = 4.6579 times

Average days in inventory = 360/4.6579 (considering 360 days in a year)

      = 77 days (approx, fraction in days ignored)

??8) These ratios indicates that how fast the inventory turns into finished stock and gets realized in cash. In case of ITC the average inventory takes almost 77 days to get converted into cash.

?You can find the financial statement of ITC Limited from the official website of the company.