Question

Assertion (A): Operating Ratio + Operating Profit Ratio = Revenue from Operations.

Reason (R): Operating Cost, when deducted from Revenue from Operations, gives the Operating Profit.

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

Options

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

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (А).

• Assertion (A) is correct, and Reason (R) is incorrect.

• Assertion (A) is not correct, but Reason (R) is correct.

Answer 1

Assertion (A) is not correct, but Reason (R) is correct.

Explanation:

Assertion (A) is incorrect because the Operating Ratio and Operating Profit Ratio are percentages based on sales, and their sum is always equal to 100% (or 1), not the Revenue from Operations amount itself. Reason (R) is completely correct because deducting the total Operating Cost (Cost of Goods Sold + Operating Expenses) from the Revenue from Operations isolates the company’s baseline core business revenue, which is termed the Operating Profit.