Read the given below two statements and mark the correct answer.
Assertion (A): Operating profit is the excess of operating revenue over operating expenses.
Reason (R) : Operating profit is profit after interest and tax.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- Assertion (A) is true but Reason (R) is False.
Assertion (A): Operating profit is the excess of operating revenue over operating expenses. THIS IS TRUE.
Reason (R) : Operating profit is profit after interest and tax. THIS IS FALSE as operating profit is profit before interest and tax (EBIT) not profit after interest and tax.
Operating Profit is the profit earned through the normal operations and activities of the business. Operating profit is the excess of operating revenue over operating expenses. While calculating operating profit, the incomes and expenses of a purely financial nature are not taken into account. Thus, operating profit is profit before interest and tax (EBIT). Similarly, abnormal items such as loss by fire, etc. are also not taken into account. It is calculated as follows: Operating profit = Net Profit + Non Operating Expenses – Non Operating Income.