Question

Assertion (A): If Gross Profit Ratio is 20%, goods costing ₹ 3,00,000 sold for ₹ 4,00,000 will increase the ratio.

Reason (R): Gross Profit = ₹ 4,00,000 − ₹ 3,00,000 = ₹ 1,00,000

G.P. Ratio = `(1,00,000)/(4,00,000) xx 100` = 25%

Since existing G.P. Ratio is 20%, it will increase.

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

Options

• (A) and (R) both are correct and (R) correctly explains (A).

• Both (A) and (R) are correct but (R) does not explain (A).

• Both (A) and (R) are incorrect.

• (A) is correct but (R) is incorrect.

Answer 1

(A) and (R) both are correct and (R) correctly explains (A).

Explanation:

Goods costing ₹3,00,000 are sold for ₹ 4,00,000, so gross profit is ₹ 1,00,000. The gross profit ratio on this sale is `(1,00,000)/(4,00,000) xx 100` = 25%. Since the current gross profit ratio is 20%, this transaction will increase the overall gross profit ratio. As a result, both assertion and reasoning are correct, and reasoning accurately explains the assertion.