Calculate the amount of gross profit and operating profit on the basis of the following balances extracted from the books of M/s Rajiv & Sons for the year ended March 31, 2017. Opening stock ₹50,000; Net sales ₹11,00,000; Net purchases ₹6,00,000; Direct expenses ₹60,000; Administration expenses ₹45,000; Selling and distribution expenses ₹65,000; Loss due to fire ₹20,000; Closing stock ₹70,000.
Gross Profit: ₹4,60,000; Operating Profit: ₹3,50,000
Explanation
To find the solution, we first determine the Cost of Goods Sold (COGS) by adding Opening Stock, Net Purchases, and Direct Expenses, then subtracting Closing Stock. Next, Gross Profit is calculated by subtracting COGS from Net Sales. Finally, Operating Profit is derived by subtracting Operating Expenses (Administration and Selling & Distribution) from the Gross Profit. The Loss due to fire is a non-operating expense and is excluded from the Operating Profit calculation.
Solution Steps
Step 1: Calculate Cost of Goods Sold (COGS) COGS = Opening Stock + Net Purchases + Direct Expenses - Closing Stock COGS = ₹50,000 + ₹6,00,000 + ₹60,000 - ₹70,000 COGS = ₹6,40,000
Step 2: Calculate Gross Profit Gross Profit = Net Sales - COGS Gross Profit = ₹11,00,000 - ₹6,40,000 Gross Profit = ₹4,60,000
Step 3: Calculate Operating Profit Operating Profit = Gross Profit - (Administration Expenses + Selling and Distribution Expenses) Operating Profit = ₹4,60,000 - (₹45,000 + ₹65,000) Operating Profit = ₹4,60,000 - ₹1,10,000 Operating Profit = ₹3,50,000 (Note: Loss due to fire is a non-operating expense and is not deducted here.)