CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship
Ramesh, a sole proprietor, has a gross profit of ₹1,20,000. His indirect expenses are salaries ₹30,000, rent ₹12,000 and advertising ₹8,000, and he earned commission income of ₹5,000. What is his net profit?
Net profit is ₹75,000. Add the commission income of ₹5,000 to gross profit of ₹1,20,000 to get ₹1,25,000, then deduct total indirect expenses of ₹50,000 (salaries, rent and advertising). Incomes are added and expenses deducted in the Profit and Loss Account.
- A₹75,000Correct
- B₹65,000
- C₹70,000
- D₹1,15,000
Explanation
Net profit = Gross profit + indirect income − indirect expenses. Indirect expenses = 30,000 + 12,000 + 8,000 = 50,000. Net profit = 1,20,000 + 5,000 − 50,000 = ₹75,000. Option ₹65,000 results from deducting the commission instead of adding it.
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