Calculate its inventory turnover

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Question - Rose Enterprise (RE) uses a periodic inventory system and has just completed a physical inventory count for the financial year ended 31 December 2020. Some selected items for the last three financial years are as follows:


2018

2019

2020


$

$

$

Pre-tax income

140,000

150,000

40,000

Ending inventory

15,000

25,000

75,000

Cost of goods sold

300,000

350,000

400,000

Accounts payable

26,000

36,000

46,000

Required -

(i) RE's cost of sales has remained steady but its inventory has increased considerably over the last two years. What does this information tell you about the company's inventory turnover? Calculate its inventory turnover and explain your answer.

(ii) RE purchases its inventory on terms "net 25 days". Evaluate and comment whether RE has any potential cashflow problem in 2020.

Reference no: EM133109826

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