S1: The Gross Profit Ratio is calculated as (Gross Profit / Net Sales) x 100. S2: A higher Gross Profit Ratio indicates better operational efficiency. Which statement(s) is/are correct? MCQ with Answer and Explanation
S1: The Gross Profit Ratio is calculated as (Gross Profit / Net Sales) x 100. S2: A higher Gross Profit Ratio indicates better operational efficiency. Which statement(s) is/are correct?
A. Neither S1 nor S2
B. Both S1 and S2
C. S1 only
D. S2 only
Answer: Option B
Solution (By JKSSB Mock Tests)
The Gross Profit Ratio is indeed (Gross Profit / Net Sales) x 100. A higher ratio indicates that the cost of goods sold is lower relative to sales, implying better operational efficiency and cost control. Both are correct.
Assertion (A): Under Ind AS 16, subsequent expenditure on an item of PPE is capitalized only if it is probable that future economic benefits will flow to the entity and the cost can be measured reliably. Reason (R): Day-to-day servicing and repair costs are expensed as incurred because they do not meet the recognition criteria. Choose the correct option.
A.A is true but R is false
B.Both A and R are true but R is NOT the correct explanation of A
C.A is false but R is true
D.Both A and R are true and R is the correct explanation of A
Explanation:
Ind AS 16 requires capitalization of subsequent costs only if they meet the recognition criteria (future economic benefits and reliable measurement). Routine repairs and servicing do not add future economic benefits, so they are expensed. R correctly explains A.
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