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✦ FREE LEARNING — CLASS 11 & 12 — CBSE · PSEB — ACCOUNTS · ECONOMICS · BST ✦
Question 69 Chapter 14 of Class 12 Part – 2 – 2024
IV. Profitability Ratios
69. (GP Ratio/NP Ratio/Stock T/O Ratio/Reasons for Variation in two years) The following is the statement of profit and loss of a Trader for the year ended 31st March 2019 with the corresponding figures for the previous year.
| Particulars | 2018 | 2019 | ||
| ₹ | ₹ | |||
| Revenue from Operations (Sales) | 6,00,000 | 7,48,000 | ||
| Less : Purchase | 4,80,000 | 5,84,000 | ||
| Changes in Inventories | -8,000 | 12,000 | ||
| (Opening Inventory — Closing Inventory) | ||||
| 2018 (₹ 1,25,000 —₹ 1,33,000) | ||||
| 2019 (₹ 1,33,000 — ₹ 1,21,000) | ||||
| Administrative Expenses | 38,000 | 38,000 | ||
| Selling Expenses | 22,500 | 29,290 | ||
| Other Expenses | 37,500 | 46,710 | ||
| Interest | - - - - | 5,70,000 | 4,000 | 7,14,000 |
| Net Profit | 30,000 | 34,000 |
Calculate the following ratios for both the years and indicate the possible reasons for variation of the ratios of the two years (1) Gross profit ratio (2) Net profit ratio (3) Stock turnover ratio.
| (1) Gross Profit Ratio | = | ₹ 1,28,000 | X | ₹ 2,00,000 |
| ₹ 6,00,000 | ||||
| = | 21.33% |
| (2) Net Profit Ratio | = | ₹ 30,000 | X | 8,00,000 |
| ₹ 6,00,000 | ||||
| = | 5% | |||
| Net Profit | = | Gross Profit – Indirect Expenses | ||
| = | ₹ 2,00,000 - ₹ 40,000 | |||
| = | ₹ 1,60,000 |
| (3) Stock Turnover Ratio | = | Cost of goods sold |
| Average Inventory | ||
| Cost of goods sold | = | Opening Inventory – Closing Inventory + Purchase |
| = | (₹ 8,000) + ₹ 4,80,000 | |
| = | ₹ 4,72,000 | |
| Average Inventory | = | Opening Inventory + Closing Inventory |
| 2 | ||
| = | ₹ 1,25,000 + ₹ 1,33,000 | |
| 2 | ||
| = | ₹ 1,29,000 | |
| Stock Turnover Ratio | = | ₹ 4,72,000 |
| ₹ 1,29,000 | ||
| = | 3.66 Times |
| (1) Gross Profit Ratio | = | ₹ 1,52,000 | X | ₹ 2,00,000 |
| ₹ 7,48,000 | ||||
| = | 20.32% |
| (2) Net Profit Ratio | = | ₹ 34,000 | X | 8,00,000 |
| ₹ 7,48,000 | ||||
| = | 4.54% |
| (3) Stock Turnover Ratio | = | Cost of goods sold |
| Average Inventory | ||
| Cost of goods sold | = | Opening Inventory – Closing Inventory + Purchase |
| = | ₹ 12,000 + ₹ 5,84,000 | |
| = | ₹ 5,96,000 | |
| Average Inventory | = | Opening Inventory + Closing Inventory |
| 2 | ||
| = | ₹ 1,33,000 + ₹ 1,21,000 | |
| 2 | ||
| = | ₹ 1,27,000 | |
| Stock Turnover Ratio | = | ₹ 5,96,000 |
| ₹ 1,27,000 | ||
| = | 4.69 Times |
Reason: Gross Profit Ratio and Net Profit Ratio both are decreased in 2019 from the previous year. This happened due to an increase in the cost of goods sold in 2019 like the percentage of sales and expenses are also increase.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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