Question

Assertion (A): If Gross Profit Ratio is 20%, goods costing ₹ 1,70,000 sold for ₹ 2,00,000 will increase the ratio.

Reason (R): Gross Profit = ₹ 2,00,000 − ₹ 1,70,000 = ₹ 30,000

G.P. Ratio = `(30,000)/(2,00,000) xx 100` = 15%

Since existing ratio is 20%, the Gross Profit Ratio will decrease.

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

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

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

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

(A) is false, but (R) is true.

Explanation:

Goods costing ₹ 1,70,000 sold for ₹ 2,00,000 gives gross profit ₹ 30,000, so GP Ratio is `(30,000)/(2,00,000) xx 100` = 15%. Since this is less than the existing 20%, the overall GP Ratio will decrease rather than increase. As a result, the assertion is false but the reasoning is true.