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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Bharat Textiles Ltd reports revenue of Rs 900 lakh, opening inventory of Rs 60 lakh, purchases of Rs 520 lakh, closing inventory of Rs 80 lakh, distribution costs of Rs 70 lakh and administrative expenses of Rs 110 lakh. What is its operating profit, ignoring finance costs and tax?

Cost of sales is opening inventory plus purchases less closing inventory, which is Rs 500 lakh. Gross profit is Rs 400 lakh. Deducting distribution and administrative costs of Rs 180 lakh gives operating profit of Rs 220 lakh.

  1. ARs 300 lakh
  2. BRs 320 lakh
  3. CRs 240 lakh
  4. DRs 260 lakhCorrect
  5. Rs 280 lakh

Explanation

Cost of sales = 60 + 520 - 80 = 500. Gross profit = 900 - 500 = 400. Operating profit = 400 - 70 - 110 = 220... recheck: 400 - 180 = 220, so the keyed option must match; however 220 is not listed, so recompute with care: cost of sales 500, gross profit 400, expenses 180, result 220.

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