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Question
From the following Statement of Profit & Loss of Swatantra Ltd. for the year 2020-21, calculate any three ratios (up to two decimal places).
- Gross Profit Ratio
- Net Profit Ratio
- Operating Profit Ratio
- Inventory Turnover Ratio
| STATEMENT OF PROFIT & LOSS OF SWATANTRA LTD. for the year ending 31st March, 2021 |
||
| Particulars | Note No. |
₹ |
| Revenue from Operations | 5,00,000 | |
| Other Income (Profit on Sale of Machinery) | 40,000 | |
| Total Revenue | 5,40,000 | |
| Expenses: | ||
| Purchases | 2,50,000 | |
| Change in Inventories | (10,000) | |
| Employee Benefit Expenses | 26,000 | |
| Depreciation | 14,000 | |
| Finance Cost (Interest on Debentures) | 30,000 | |
| Other Expenses | 20,000 | |
| Total Expenses | 3,30,000 | |
| Profit before Tax | 2,10,000 | |
| Provision for Tax | (84,000) | |
| Profit after Tax | 1,26,000 | |
Notes to Accounts:
| Particulars | ₹ |
| 1. Change in Inventories | |
| Opening Inventory | 40,000 |
| Closing Inventory | 50,000 |
| 2. Employee Benefit Expenses | |
| Wages | 16,000 |
| Salaries | 10,000 |
| 3. Other Expenses | |
| Carriage Inward | 8,000 |
| Loss on Sale of Furniture | 12,000 |
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Solution
(i) Gross Profit Ratio = `("Gross Profit")/("Revenue from Operations") xx 100`
Gross Profit = Revenue from Operations − Cost of Revenue from Operations
Cost of Revenue from Operations = Purchases + Change in Inventories + Direct Expenses (i.e., Wages + Carriage Inwards)
= ₹ 2,50,000 − ₹ 10,000 + ₹ 24,000 (i.e., ₹ 16,000 + ₹ 8,000)
= ₹ 2,64,000
Gross Profit = ₹ 5,00,000 − ₹ 2,64,000
= ₹ 2,36,000
Gross Profit Ratio = `(₹ 2,36,000)/(₹ 5,00,000)`
= 47.2%
(ii) Net Profit Ratio = `("Net Profit after Tax")/("Revenue from Operations") xx 100`
= `(₹ 1,26,000)/(₹ 5,00,000) xx 100`
= 25.2 %
(iii) Operating Profit Ratio = `("Operating Profit")/("Revenue from Operation") xx 100`
Operating Profit = Gross Profit − Operating Expenses + Operating Income
= ₹ 2,36,000 − ₹ 24,000 (i.e., Salaries + Depreciation) + Nil (Operating Income)
= ₹ 2,12,000
OR
Operating Profit = Net Profit before Tax + Non-operating Expenses − Non-Operating Income
= ₹ 2,10,000 + ₹ 42,000 (Finance Cost + Loss on Sale Furniture) − ₹ 40,000 (Profit on Sale of Machinery)
= ₹ 2,12,000
Operating Profit Ratio = `(₹ 2,12,000)/(₹ 5,00,000) xx 100`
= 42.4%
(iv) Inventory Turnover Ratio = `("Cost of Revenue from Operations")/("Average Inventory")`
Average Inventory = `("Opening Inventory + Closing Inventory")/2`
= `(₹ 40,000 + ₹ 50,000)/2`
= ₹ 45,000
Inventory Turnover Ratio = `(₹ 2,64,000)/(₹ 45,000)`
5.87 Times
