Question

Assertion (A): If Gross Profit Ratio is 25%, purchase of goods of ₹ 1,00,000 on credit will decrease the Gross Profit Ratio.

Reason (R): Purchase of goods either on credit or for cash will not change the Gross Profit Ratio because there will be equal increase in Purchases and Closing Inventory and hence Cost of Revenue from Operations remain unchanged.

In the context of the above two statements, which of the following is correct?

पर्याय

• Both (A) and (R) are correct and (R) is the correct reason of (A).

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Only (R) is correct.

Explanation:

The purchase of goods (cash or credit) has no effect on the Gross Profit Ratio unless they are sold. If the purchased goods remain unsold, purchases and closing stock increase in equal measure, the cost of revenue from operations and gross profit remain constant. Therefore, Reason is correct.