In a certain period, the income statement shows sales of ¥80 million, cost of sales of ¥50 million, selling, general and administrative expenses of ¥18 million, non-operating income of ¥1 million, non-operating expenses of ¥3 million, extraordinary gains of ¥2 million and extraordinary losses of ¥4 million. Which is the ordinary profit for this period?

Answer: B. ¥10 million

Gross profit is 80 − 50 = ¥30 million, and operating profit is 30 − 18 = ¥12 million. Ordinary profit (keijō rieki, used in Japanese financial statements) adds non-operating income such as interest received to operating profit and subtracts non-operating expenses such as interest paid: 12 + 1 − 3 = ¥10 million. Extraordinary gains and losses are one-off items such as gains on the sale of fixed assets or losses from disasters, and they are added and subtracted after ordinary profit to get profit before income taxes (10 + 2 − 4 = ¥8 million).

• A. This is profit before income taxes, obtained by also adding the extraordinary gains and subtracting the extraordinary losses.
• B. Correct. It is operating profit plus non-operating income minus non-operating expenses.
• C. This is operating profit. It shows the profit from the core business and does not yet include non-operating income and expenses.