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Accounting · Accounts from Incomplete Records

Gross Profit Ratios, Margin and Mark-up in Incomplete Records

Updated 1 October 2026 · Fact-checked

Gross profit margin is gross profit as a percentage of sales. Mark-up is gross profit as a percentage of cost. Convert either one into a trading account format with sales, cost of goods sold and gross profit. Then solve for the missing figure: sales, purchases or closing stock, including stock lost by fire or theft.

Understand Gross Profit Ratios, Margin and Mark-up

In incomplete records you often do not have a full trading account. You may know opening stock, purchases and a gross profit percentage, but not closing stock. The gross profit ratio lets you rebuild the missing figure.

There are two ways to express gross profit. Margin (gross profit ratio) uses sales as the base. Mark-up uses cost of goods sold as the base. The same profit looks different under each. If cost is ₹80 and sales is ₹100, profit is ₹20. Margin is 20 ÷ 100 = 20%. Mark-up is 20 ÷ 80 = 25%.

The key habit is to fix a base of 100 and write down sales, cost and profit side by side. Margin 20% means: Sales 100, GP 20, Cost 80. Mark-up 25% means: Cost 100, GP 25, Sales 125. Always read the question carefully to see which base is used. Phrases like 'on cost', 'mark-up' or 'profit loading' mean cost base. 'On sales', 'margin' or 'gross profit ratio' mean sales base.

Once you know the relation, use the trading account identity: Opening stock + Purchases (net of returns) + direct expenses − Closing stock = Cost of goods sold. Sales − Cost of goods sold = Gross profit. If you know sales and the ratio, you get cost of goods sold, and then closing stock as the balancing figure.

For stock lost by fire or theft, the closing stock at the date of the loss is estimated the same way, using the trading account up to that date. This gives the stock that should have been there. Deduct any stock salvaged to get the loss. The insurance claim depends on the policy terms, so use only the figures given in the question.

Key rules to remember

Gross profit margin
Margin % = (Gross profit ÷ Sales) × 100
Sales is the base. Margin is always below 100%.
Mark-up
Mark-up % = (Gross profit ÷ Cost of goods sold) × 100
Cost is the base. Mark-up can exceed 100%.
Cost of goods sold
COGS = Opening stock + Net purchases + Direct expenses − Closing stock
Use net purchases after returns. Add carriage inwards and similar direct costs.
Gross profit
Gross profit = Sales − COGS
Net sales means after sales returns.
Mark-up to margin
Margin % = Mark-up ÷ (100 + Mark-up) × 100
Example: 25% mark-up gives 25 ÷ 125 = 20% margin.
Margin to mark-up
Mark-up % = Margin ÷ (100 − Margin) × 100
Example: 20% margin gives 20 ÷ 80 = 25% mark-up.
Stock lost
Stock lost = Stock at date of loss − Salvage value
Stock at date of loss comes from the trading account up to that date.

How to solve Gross Profit Ratios, Margin and Mark-up questions

Use this order for any question on margin, mark-up or stock lost. It keeps the base clear and shows working for step marks.

  1. 1Read the ratio and note its base: sales (margin) or cost (mark-up).
  2. 2Write a base-100 table. For margin on sales: Sales 100, GP given, Cost 100 − GP. For mark-up: Cost 100, GP given, Sales 100 + GP.
  3. 3Prepare a trading account up to the required date. Enter opening stock, purchases, returns, direct expenses and sales.
  4. 4Adjust sales and purchases for returns. If purchases or sales are missing, find them from debtors, creditors or cash summaries first.
  5. 5Use the ratio to find gross profit and COGS from sales (or sales from COGS).
  6. 6Find the missing item as the balancing figure: closing stock, purchases or sales.
  7. 7For fire or theft, treat the balancing closing stock as stock at the date of loss, then deduct salvage to get the loss and show the claim working.
  8. 8State the final answer clearly with the working shown.

Quickest way: Base-100 ratio table

When to use it: Use it whenever a question gives a percentage and asks for sales, cost or stock. It works in under two minutes for most exam problems.

  1. Convert the ratio to a Sales : Cost : GP triple. Margin 25% on sales gives 100 : 75 : 25. Mark-up 25% on cost gives 125 : 100 : 25.
  2. Scale the triple to the known figure using proportion. If sales is ₹6,00,000 and the triple is 100 : 75 : 25, cost is ₹4,50,000.
  3. Write the trading account as a short vertical format: Opening stock + Purchases − Closing stock = COGS.
  4. Put in COGS and solve for the single unknown.
  5. Check the answer: closing stock must not be negative and GP must match the ratio.

Common mistakes in Gross Profit Ratios, Margin and Mark-up

  • Applying the percentage on the wrong base, for example taking 25% mark-up as 25% of sales.

    Students see 'profit 25%' and assume it is on sales.

    Fix: Look for the words 'on cost' or 'mark-up' versus 'on sales' or 'margin'. Then build the base-100 table before calculating.

  • Forgetting to adjust for returns, so purchases or sales are overstated.

    Returns appear separately in the question and get ignored.

    Fix: Deduct purchase returns from purchases and sales returns from sales before the ratio is applied.

  • Ignoring direct expenses like carriage inwards or wages in COGS.

    Students use only opening stock plus purchases less closing stock.

    Fix: Add all direct expenses given in the trading account to the cost side.

  • Using the closing stock at the last balance sheet date for a fire loss.

    Students confuse the date of loss with the year end.

    Fix: Take the opening stock at the start of the period and prepare a trading account only up to the date of the fire.

  • Not deducting salvaged stock from the loss.

    The salvage figure is given at the end and is overlooked.

    Fix: Always write: Stock at date of fire − Salvage = Loss. Deduct any amount stated as already recovered.

  • Mixing up sales with cost when the ratio gives GP on sales but the question gives purchases.

    Students directly apply the ratio to purchases.

    Fix: Find COGS first, then use the triple to move between COGS and sales.

Worked examples

Example 1

A trader's opening stock on 1 April was ₹60,000. During the year purchases were ₹4,20,000, purchase returns ₹20,000 and carriage inwards ₹10,000. Sales were ₹6,00,000. The gross profit margin is 25% on sales. Find closing stock on 31 March.

Show the solution
  1. Margin is 25% on sales, so GP = 25% × 6,00,000 = ₹1,50,000.
  2. COGS = Sales − GP = 6,00,000 − 1,50,000 = ₹4,50,000.
  3. Net purchases = 4,20,000 − 20,000 = ₹4,00,000.
  4. Goods available = Opening stock 60,000 + Net purchases 4,00,000 + Carriage inwards 10,000 = ₹4,70,000.
  5. Closing stock = Goods available − COGS = 4,70,000 − 4,50,000 = ₹20,000.

Answer: Closing stock is ₹20,000.

Example 2

On 10 October a fire destroyed the godown of a trader. Stock on 1 April was ₹1,00,000. From 1 April to 10 October purchases were ₹5,00,000 and sales were ₹6,30,000. The firm sells goods at cost plus 40%. Goods costing ₹30,000 were salvaged. Find the stock lost by fire.

Show the solution
  1. Mark-up is 40% on cost, so Cost : GP : Sales = 100 : 40 : 140.
  2. COGS = Sales × 100 ÷ 140 = 6,30,000 × 100 ÷ 140 = ₹4,50,000.
  3. Goods available = Opening stock 1,00,000 + Purchases 5,00,000 = ₹6,00,000.
  4. Stock at date of fire = Goods available − COGS = 6,00,000 − 4,50,000 = ₹1,50,000.
  5. Stock lost = Stock at fire − Salvage = 1,50,000 − 30,000 = ₹1,20,000.

Answer: Stock lost by fire is ₹1,20,000 (stock at the date of fire ₹1,50,000 less salvage ₹30,000).

Exam tips

  • Underline the words 'on cost', 'mark-up', 'on sales' or 'margin' before starting. This decides the base.
  • Show the base-100 table in your answer. Examiners give marks for the method even if arithmetic slips.
  • Present a short trading account up to the date required. A fire question needs one until the date of loss, not the year end.
  • Check whether sales and purchases are given as totals or must be derived from debtors and creditors accounts first.
  • Write the final figure with a label such as 'Stock lost by fire' and state any salvage deducted.

Practice questions from Accounts from Incomplete Records

Gross Profit Ratios, Margin and Mark-up: frequently asked questions

What is the difference between margin and mark-up?

Margin is gross profit as a percentage of sales. Mark-up is gross profit as a percentage of cost. For the same profit, mark-up is always the higher percentage.

How do I calculate closing stock using the gross profit ratio?

Find sales and the ratio, and from them the gross profit and COGS. Then add opening stock, net purchases and direct expenses. Subtract COGS from that total to get closing stock.

How do I find stock destroyed by fire?

Prepare a trading account from the start of the period to the date of fire. The balancing closing stock is the stock at that date. Subtract any salvage value to get the loss.

Can mark-up be more than 100%?

Yes. If cost is ₹100 and sales is ₹250, profit is ₹150, so mark-up is 150%. Margin can never reach 100% because sales always exceeds profit.