Question

From the following Statement of Profit and Loss of Yash Ltd. for the year ended 31st March 2016, Compute Operating Ratio :

$\begin{array}{c}\text{STATEMENT OF PROFIT AND LOSS}\\ fortheyearended31stMarch,2016\end{array}\begin{array}{cccc}& Particulars& Note& Rs.\\ & & No& \\ \text{I.}& \text{Revenue from Operations(Sales)}& & \text{16,00,000}\\ \text{II.}& Add:\text{Other Incomes}& & 40,000\\ \text{III.}& \text{Total Revenue I + II}& & \underset{–}{\overline{16,40,000}}\\ & & & \\ \text{IV.}& Less:\text{Expenses}& & \\ & \text{Purchase of Stock-in-Trade}& & 9,60,000\\ & \text{Changes in Inventories of Stock in Trade}& & (25,000)\\ & \text{Employee Benefit Expenses}& & 1,80,000\\ & \text{Finance Costs}& & 46,000\\ & \text{Depreciation and Amortization Expenses}& & 40,000\\ & \text{Other Expenses}& 1& 1,15,000\\ & \text{Total Expenses}& & \overline{\underset{–}{13,16,000}}\\ \text{V}& \text{Profit before Tax}(III-IV)& & \underset{–}{3,24,000}\end{array}$

Notes to Accounts :

$\begin{array}{ccc}& Particulars& Rs.\\ 1.& \text{Other Expenses}:& \\ & \text{Administrative Expenses}& 70,000\\ & \text{Selling Expenses}& 31,000\\ & \text{Loss on Sale of Machinery}& 14,000\\ & & \overline{\underset{–}{1,15,000}}\end{array}$

Answer 1

Operating Ratio = $\frac{\text{Cost of Revenue from Operations + Operating expenses}}{\text{Revenue from Operations}}\times 100$

Cost of Revenue from Opetations = Purchase of Stock in Trade + Change in Inventory of Stock in Trade

= Rs. 9,60,000 - Rs. 25,000 = Rs. 9,35,000

Operating Expenses = Employee Benefit Exp. + Depreciation and Amortization Expenses + Other Exp. (i.e., Administrative Exp. + Selling Exp.)

= Rs. 1,80,000 + Rs. 40,000 + Rs. 70,000 + Rs.31,000

= Rs. 3,21,000

Operating Ratio = $\frac{Rs.9,35,000+Rs.3,21,000}{Rs.16,00,000}\times 100$

= 78.5%