From the following balances taken from the books of Simmi and Vimmi Ltd. for the year ending March 31, 2017, calculate the gross profit. Closing stock: ₹2,50,000; Net sales during the year: ₹40,00,000; Net purchases during the year: ₹15,00,000; Opening stock: ₹15,00,000; Direct expenses: ₹80,000.
Trading Account for the year ending March 31, 2017
| Particulars | Amount (₹) | Particulars | Amount (₹) |
|---|---|---|---|
| To Opening Stock | 15,00,000 | By Net Sales | 40,00,000 |
| To Net Purchases | 15,00,000 | By Closing Stock | 2,50,000 |
| To Direct Expenses | 80,000 | ||
| To Gross Profit c/d | 11,70,000 | ||
| Total | 42,50,000 | Total | 42,50,000 |
Note: The Gross Profit is calculated as ₹11,70,000.
Explanation
To find the Gross Profit, we prepare a Trading Account or use the fundamental cost equation. First, determine the Cost of Goods Sold (COGS) by adding Opening Stock, Net Purchases, and Direct Expenses, then subtracting Closing Stock. The calculation is: ₹15,00,000 + ₹15,00,000 + ₹80,000 - ₹2,50,000 = ₹28,30,000 (COGS). Then, subtract COGS from Net Sales to find the Gross Profit: ₹40,00,000 - ₹28,30,000 = ₹11,70,000.
Solution Steps
Step 1: Calculate Cost of Goods Available for Sale. Opening Stock (₹15,00,000) + Net Purchases (₹15,00,000) + Direct Expenses (₹80,000) = ₹30,80,000.
Step 2: Calculate Cost of Goods Sold (COGS). Cost of Goods Available for Sale (₹30,80,000) - Closing Stock (₹2,50,000) = ₹28,30,000.
Step 3: Calculate Gross Profit. Net Sales (₹40,00,000) - COGS (₹28,30,000) = ₹11,70,000.