REASON FOR DECREASING GP RATIO AND NP RATIO
This query is : Resolved
14 November 2010
THE FIRM IS ENGAGED IN TRADING IN FOOD GRAINS AND FOOD ITEMS. ITS GP AND NP KEEP ON DECREASING LIKE GP FALL FROM 1.89% TO 0.79% AND TO 0.45% THOUGH THE OPENING AND CLOSING STOCK ARE CORRECTLY VALUED.WHAT COULD BE THE REASON FOR SUCH TREND ?
14 November 2010
Causes / reasons of increase or decrease in gross profit ratio:
It should be observed that an increase in the GP ratio may be due to the following factors.
1. Increase in the selling price of goods sold without any corresponding increase in the cost of goods sold.
2. Decrease in cost of goods sold without corresponding decrease in selling price.
3. Omission of purchase invoices from accounts.
4. Under valuation of opening stock or overvaluation of closing stock.
On the other hand, the decrease in the gross profit ratio may be due to the following factors.
1. Decrease in the selling price of goods, without corresponding decrease in the cost of goods sold.
2. Increase in the cost of goods sold without any increase in selling price.
3. Unfavorable purchasing or markup policies.
4. Inability of management to improve sales volume, or omission of sales.
5. Over valuation of opening stock or under valuation of closing stock
It should be observed that an increase in the GP ratio may be due to the following factors.
1. Increase in the selling price of goods sold without any corresponding increase in the cost of goods sold.
2. Decrease in cost of goods sold without corresponding decrease in selling price.
3. Omission of purchase invoices from accounts.
4. Under valuation of opening stock or overvaluation of closing stock.
On the other hand, the decrease in the gross profit ratio may be due to the following factors.
1. Decrease in the selling price of goods, without corresponding decrease in the cost of goods sold.
2. Increase in the cost of goods sold without any increase in selling price.
3. Unfavorable purchasing or markup policies.
4. Inability of management to improve sales volume, or omission of sales.
5. Over valuation of opening stock or under valuation of closing stock
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14 November 2010
sir our case is under scrutiny how should we justify our falling GP rate ? plz guide us
14 November 2010
You will have to find out the reasons looking at the probable reasons. You will have to compare your financial data say from last years. Once you analyze properly you will be able to find out the reason of fall in G.P. Rate.
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