Operating profit earned by M/s Arora & Sachdeva in 2016-17 was ₹17,00,000. Its non-operating incomes were ₹1,50,000 and non-operating expenses were ₹3,75,000. Calculate the amount of net profit earned by the firm.
Solution: To calculate the Net Profit, we adjust the Operating Profit by adding Non-operating Incomes and deducting Non-operating Expenses.
Calculation:
- Operating Profit: ₹17,00,000
- Add: Non-operating Incomes: ₹1,50,000
- Less: Non-operating Expenses: ₹3,75,000
Net Profit = Operating Profit + Non-operating Incomes – Non-operating Expenses Net Profit = 17,00,000 + 1,50,000 – 3,75,000 Net Profit = ₹14,75,000
Explanation
The question tests the relationship between Operating Profit and Net Profit. Operating Profit reflects the profit from core business activities. To arrive at the Net Profit, one must account for peripheral activities by adding any Non-operating Incomes (like interest received or rent received) and subtracting Non-operating Expenses (like interest paid or loss by fire). The context confirms the final answer is ₹14,75,000.
Solution Steps
Step 1: Identify the Operating Profit (₹17,00,000).
Step 2: Add Non-operating Incomes (₹1,50,000) to the Operating Profit.
Step 3: Subtract Non-operating Expenses (₹3,75,000) from the result.
Step 4: Compute the final Net Profit: 17,00,000 + 1,50,000 - 3,75,000 = ₹14,75,000.