144 :- 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 Rs 50,000.
(ii) Purchases Return Rs 15,000.
(iii) Cash Sale of Stock-in-Trade Rs 40,000.
(iv) Stock-in-Trade costing Rs 20,000 withdrawn for personal use.
(v) Stock-in-Trade costing Rs 15,000 distributed as free sample.
Solution :-
(i) Purchases of Stock-in-Trade Rs 50,000.
No change
Both purchases and closing inventory will increase by Rs50,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.
(ii) Purchases Return Rs 15,000.
No Change
Both Purchases and closing inventory will decrease by Rs 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 Rs 40,000.
No Change
Revenue from operations will increase by Rs 40,000 and Gross Profit will increase by 10,000 (40,000 x 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(iv) Stock-in-Trade costing Rs 20,000 withdrawn for personal use.
No Change
Both Purchases and closing inventory will decrease by Rs 20,000; therefore, cost of revenue from operations will not be affected. So, Gross Profit Ratio will remain same.
(v) Stock-in-Trade costing Rs 15,000 distributed as free sample.
No Change
Both Purchases and Closing inventory will decrease by Rs 15,000; therefore, cost of revenue from operations will not be affected. So, gross Profit ratio will remain same.