Gross profit ratio of a company was 25%. Its credit revenue from operations was ₹20,00,000 and its cash revenue from operations was 20% of the total revenue from operations. If the indirect expenses of the company were ₹50,000, Calculate its net profit.

₹5,75,000

The correct answer is option 4- ₹5,75,000.

Credit Revenue from Operations = ₹20,00,000

Cash Revenue from Operations = 20% of Total Revenue from Operations

Let Total Revenue from Operations = x
Cash Revenue from operations = 20% of x
Credit Revenue from operations = ₹20,00,000
x = 20% of x + 20,00,000
x - 20% of x = 20,00,000
x - x/5 = 20,00,000
4x/5 = 20,00,000
x = 20,00,000 x 5/4
   = 25,00,000

So, total revenue from operations are 25,00,000.

Gross Profit Ratio = 25%
Gross Profit Ratio = Gross Profit / Revenue from operations × 100
                      25 = Gross profit/25,00,000 x 100
Gross profit = 25 x 25,00,000/100
                  = 6,25,000

So, gross profit is 6,25,000.

Indirect expenses = 50,000

Net Profit = Gross Profit − Indirect Expenses
              = 6,25,000 - 50,000
              = 5,75,000