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Question
Assertion (A): If Gross Profit Ratio is 25%, goods costing ₹ 20,000 withdrawn for personal use will decrease the Gross Profit Ratio.
Reason (R): Goods withdrawn for personal use will not change the ratio because there will be equal decrease in Purchases and Closing Inventory and hence Cost of Revenue from Operations will remain unchanged.
In the context of the above two statements, which of the following is correct?
Options
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.
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Solution
Only (R) is correct.
Explanation:
When goods are withdrawn for personal use, both purchases and closing stock decrease by the same amount, resulting in an unchanged Cost of Revenue from Operations. Because sales are not affected, the Gross Profit Ratio remains unchanged. Therefore, Reason is correct.
