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G.p. ratio

Others 860 views 1 replies

Agam Bhasin

B.Com (Hons) CA Final

114 Points Posted on 25 February 2014

DEAR MEMBERS I HAVE AN URGENT QUERY TO WHICH I SOUGHT YOUR RESPONSE. I am preparing a stock audit report for a bank in which there is this point of contention that in order to calculate G.P. RATIO for the purposes of calculating stock reconcilliation, whether all direct expenses should be considered or only expenses relating to purchase must be considered as in calculation of reconciliation only purchases are considered. As per my view the Gross Profit Ratio is a ratio which covers ALL Direct expenses & provide for profit. Please help me resolve the issue, your valuable guidance is awaited. Regards

Replies (1)

Milind M. Kulkarni

Practicing CA

597 Points Posted on 13 March 2014

Conceptually, you should consider all the direct expenses while calculating the gross profit. You can discuss about the format of reconciliation with bank officials (usually person from audit dept in bank should be able to clarify this). One apparent reason for non-inclusion of direct expenses in the format could be that it may be devised for a trading concern whereas in case of manufacturing unit, direct expenses also need to be considered in stock valuation.