Explanation:

The inventory turnover ratio is a financial metric that measures the efficiency of a company in managing its inventory. It is calculated by dividing the cost of goods sold (COGS) by the average inventory during a specific period.

When there are purchase returns, it means that goods previously purchased from suppliers are being returned to them due to various reasons such as defects, errors, or dissatisfaction. These returned goods are then deducted from the inventory.

Impact of purchase returns on the inventory turnover ratio:

1. Decreased COGS: Purchase returns decrease the cost of goods sold because the returned goods are no longer included in the calculation of COGS. As a result, the numerator of the inventory turnover ratio decreases.

2. Decreased average inventory: Purchase returns reduce the average inventory because the returned goods are deducted from the inventory. This leads to a decrease in the denominator of the inventory turnover ratio.

3. Overall impact: Since both the numerator and denominator of the inventory turnover ratio decrease, the ratio itself is likely to decrease. This means that the inventory turnover ratio deteriorates as a result of purchase returns.

Example:

Let's consider a hypothetical example to understand this concept better. Suppose a company had COGS of $200,000 and an average inventory of $100,000, resulting in an inventory turnover ratio of 2.

If the company then had purchase returns amounting to $20,000, the COGS would decrease to $180,000, and the average inventory would decrease to $80,000. The new inventory turnover ratio would be 2.25, indicating a deterioration in the ratio.

Conclusion:

Based on the explanation and example provided, it can be concluded that purchase returns amounting to $20,000 will deteriorate the inventory turnover ratio. Therefore, the correct answer is option 'B' (False).