12th | Accounting Ratios | Question No. 116 To 120 | Ts Grewal Solution 2022-2023

A trader carries an average Inventory of one `1,00,000. His Inventory turnover Ratio is 8 times; He Sells goods at a profit of 25% of cost. Calculate Gross Profit Ratio

Gross profit ratio = gross profit upon revenue from operations ×100

Gross profit ratio = 2,00,000/1,00,0000 ×100 = 20%

Cost of revenue from operation = average inventory × inventory turnover ratio

Cost of revenue from operation = 1,00,000 × 8 = 8,00,000

Gross profit =  25% of 8,00,000 = 2,00,000

Revenue from operation = cost of revenue from operations + gross profit

Revenue from operation = 8,00,000 +2,00,000 = 10,00,000

Calculate Gross Profit Ratio from the following data:
Average Inventory  `3,20,000; Inventory Turnover Ratio 8 Times; Average Trade Receivables  `4,00,000; Trade Receivables Turnover Ratio 6 Times; Cash Sales 25% of Net Sales.

Inventory Turnover Ratio = 8 times
Average Inventory =  ` 3,20,000

Cost of Goods sold = 25,60,000
Trade Receivables Turnover Ratio = 6 times
Average Trade Receivables =  ` 4,00,000

Stock turnover ratio= Cost of Goods sold/ Average Stock = Cost of Goods sold/3,20,000=8 Times

Net Credit Sales = 24,00,000
Total Sales = Cash Sales + Credit Sales
Total Sales = 25% of Total Sales + Credit Sales
75% of Total Sales = 24,00,000
Trade Receivables Turnover Ratio = Net Credit Sales/ Average Trade Receivables=

6= Net Credit Sales/4,00,000

Gross Profit = Total Sales – Cost of Goods Sold
                    = 32,00,000 – 25,60,000 = 6,40,000
Total Sales= Gross Profit×100/ Net Sales

= 6,40,000/32,00,000×100=20%

 

(i) Revenue from Operations: Cash Sales  `4,20,000; Credit Sales  `6,00,000; Return  `20,000. Cost of Revenue from Operations or Cost of Goods Sold  `8,00,000. Calculate Gross Profit Ratio.
(ii) Average Inventory  `1,60,000; Inventory Turnover Ratio is 6 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.
(iii) Opening Inventory  `1,00,000; Closing Inventory  `60,000; Inventory Turnover Ratio 8 Times; Selling Price 25% above cost. Calculate Gross Profit Ratio.

(i)

Net Sales= Cash Sales+ Credit Sales- Sales Return

=4,20,000+6,00,000-20,000=10,00,000

Cost of Goods Sold = 8,00,000

Gross Profit= Net Sales- Cost of Goods Sold 

=10,00,000-8,00,000=2,00,000

Gross Profit Ratio.= Gross Profit/ Net Sales×100

                                    =2,00,000/10,00,000×100=20%

 

(ii) Average Stock = 1,60,000

Stock Turnover Ratio = 6 Times

Stock turnover ratio= Cost of Goods sold/ Average Stock

8 = Cost of Goods sold/3,20,000

Cost of Goods sold=9,60,000

Gross Profit = 25% on Cost

Gross Profit =25/100×9,60,000=2,40,000

Net Sales= Cost of Goods sold +Gross Profit

Gross Profit Ratio.= Gross Profit/ Net Sales×100

                                    =2,40,000/12,00,000×100=20%

 

 (iii) Opening Inventory = 1,00,000

Closing Inventory = 60,000

Average Inventory= Opening Inventory /Closing Inventory

Inventory turnover ratio= Cost of Goods sold/ Average Inventory

Gross Profit = 25% on Cost

Gross profit=25/100×6,40,000=1,60,000

Net Sales= Cost of Goods sold +Gross Profit

                        =6,40,000+1,60,000=8,00,000

Gross Profit Ratio = Gross Profit/ Net Sales × 100 

= 1,60,000/8,00,000× 100 = 20%

 

Gross Profit Ratio of a company is 25%. State giving reason, which of the following transactions will (a) increase or (b) decrease or (c) not alter the Gross Profit Ratio.
(i) Purchases of Stock-in-Trade  `50,000.
(ii) Purchases Return  `15,000.
(iii) Cash Sale of Stock-in-Trade  `40,000.
(iv) Stock-in-Trade costing  `20,000 withdrawn for personal use.
(v) Stock-in-Trade costing  `15,000 distributed as free sample.

Transactions	Effect on Gross Profit Ratio	Reason
(i) Purchase of Stock-in-Trade  ` 50,000	No Change	Both purchases and closing inventory will increase by  ` 50,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.
(ii) Purchase Return  ` 15,000	No Change	Both purchases and closing inventory will decrease by  ` 15,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.
(iii) Cash Sale of Stock-in-Trade  ` 40,000	No Change	Revenue from operations will increase by  ` 40,000 and Gross Profit will increase by 10,000 (40,000 × 25%), Therefore, both revenue from operations and gross profit will increase by 25%. So, Gross Profit Ratio will remain same.
(iv) Stock-in-trade costing  ` 20,000 withdrawn for personal use	No Change	Both purchases and closing inventory will decrease by  ` 20,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.
(v) Stock-in-Trade costing  ` 15,000 distributed as free sample	No Change	Both purchases and closing inventory will decrease by  ` 15,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.

 

Cost of Revenue from Operations (Cost of Goods Sold)  `3,00,000. Operating Expenses  `1,20,000. Revenue from Operations: Cash Sales  `5,20,000; Return  `20,000. Calculate Operating Ratio.

Net Sales= Cost of Goods sold +Gross Profit

                        =5,20,000-20,000=5,00,000

Operating Cost = Cost of Goods Sold+ Operating Expenses 

                        =3,00,000+1,20,000=4,20,000

Operating Ratio= Operating Cost/ Net Sales ×100

                        =4,20,000/5,00,000× 100=84%