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Financial Accounting · Branch (including Foreign Branch) and Departmental Accounts

Branch Accounting: Invoice Price, Loading and Stock Reserve

Updated 10 October 2026 · Fact-checked

When head office sends goods to a branch at invoice price (cost plus a loading), the branch books show inflated figures. Loading is the extra profit element. You remove it using a Stock Reserve on closing stock, a Goods Sent to Branch adjustment, and by taking abnormal loss at cost only.

Understand Branch Accounting: Invoice Price, Loading and Stock Reserve

A head office may send goods to a branch at cost. Often it sends them at invoice price, which is usually the selling price or cost plus a fixed loading. The reason is control: the branch manager is accountable for stock at selling price, so any shortage shows up quickly.

The difference between invoice price and cost is the loading. It is a profit that the head office has loaded into the goods but has not yet earned. Profit is earned only when the branch sells the goods. So loading on unsold goods must not be counted as profit.

That is why you create a Stock Reserve (also called Provision for Unrealised Profit). It equals the loading contained in the branch closing stock. You charge it to the Branch Account (or the Profit and Loss Account, per the question) at the year end, and you bring the opening reserve back as a credit at the start of the next year.

The invoice price also inflates the goods sent. So you reduce Goods Sent to Branch by its loading, and show the net amount (cost) against Purchases or Trading Account. The same applies to goods returned by the branch, which are at invoice price and must be reduced by their loading.

Losses need care. A normal loss (evaporation, breakage in the ordinary course) is not credited separately in the Branch Account. Its invoice value stays charged in the Branch Account, so the branch profit is reduced and the loss is borne by the branch result. The lost goods are not in closing stock, so the stock reserve is made only on the actual closing stock. An abnormal loss (theft, fire, accident) is taken out at cost, not invoice price, and charged to the Profit and Loss Account, less any insurance claim. In the Branch Account you credit the loss at invoice price, then reverse the loading so only cost is charged.

Key rules to remember

Loading on cost
Loading = Invoice price − Cost
Loading % on cost = (Invoice − Cost) ÷ Cost × 100.
Cost from invoice price (loading on cost)
Cost = Invoice price × 100 ÷ (100 + loading % on cost)
Loading portion of invoice price = Invoice price × loading% ÷ (100 + loading%).
Cost from invoice price (loading on invoice price)
Loading = Invoice price × loading % on invoice price
Example: invoice price is cost plus 25% on cost, which means loading is 20% of invoice price. Check which base is stated.
Stock Reserve
Stock Reserve = Loading in closing stock at invoice price
Opening stock reserve is credited, closing stock reserve is debited in the Branch Account.
Goods Sent to Branch adjustment
Net goods sent at cost = Goods sent at invoice price − Loading on goods sent (less returns at invoice price and their loading)
Loading on goods sent: debit Goods Sent to Branch, credit Branch Account. Loading on goods returned: debit Branch Account, credit Goods Sent to Branch, so the net adjustment is the loading on net goods sent. Transfer the balance of Goods Sent to Branch (cost) to the Trading Account or Purchases.
Abnormal loss
Abnormal loss charged to P&L = Invoice price of loss − Loading on it = Cost of loss
Deduct insurance claim admitted; the balance is the loss.

How to solve Branch Accounting: Invoice Price, Loading and Stock Reserve questions

Use the Branch Account at invoice price in the head office books. Work in this order so the loading is removed everywhere it appears.

  1. 1Read whether loading is stated on cost or on invoice price, and write the loading fraction of invoice price.
  2. 2Prepare a Branch Account with all items at invoice price: opening stock, goods sent, sales or cash, closing stock, returns, and losses.
  3. 3Add the opening stock reserve to the credit side and the closing stock reserve to the debit side, each calculated from the loading fraction.
  4. 4Pass the Goods Sent to Branch adjustment: debit Goods Sent to Branch and credit the Branch Account with the loading on goods sent. Show goods returned at invoice price on the credit side of the Branch Account, and show the loading on those returns on the debit side (credit Goods Sent to Branch). The net adjustment is then the loading on net goods sent.
  5. 5Record normal loss without a separate entry; the lost goods are simply absent from closing stock. Show abnormal loss at invoice price on the credit side of the Branch Account, then debit the Branch Account with the loading on it and credit Abnormal Loss with the same amount, so the loss stands at cost.
  6. 6Balance the Branch Account. The balancing figure is the branch profit or loss, transferred to the General Profit and Loss Account.
  7. 7Present the Stock Reserve in the Balance Sheet by deducting it from branch stock, or show stock at cost.

Quickest way: Loading fraction shortcut

When to use it: Use it when the question gives loading as a percentage and you need to find the reserve and cost quickly.

  1. Convert the loading into a fraction of invoice price. Cost plus 25% means loading is 25/125 = 1/5 of invoice price.
  2. Multiply every invoice-price item by that fraction: closing stock, opening stock, goods sent, returns and loss.
  3. Subtract the loading from invoice items to get cost, or use the fraction of cost directly.
  4. Post only the net adjustment lines in the Branch Account and balance it. Do not recompute twice.

Common mistakes in Branch Accounting: Invoice Price, Loading and Stock Reserve

  • Applying 25% on invoice price when the question says 25% on cost.

    Students multiply invoice price by the quoted percentage without checking the base.

    Fix: Write the base first. For loading on cost, loading = invoice price × loading% ÷ (100 + loading%).

  • Forgetting the opening stock reserve.

    Students create only the closing reserve because it is the figure at the year end.

    Fix: Always credit the opening reserve in the Branch Account and debit the closing reserve.

  • Charging abnormal loss at invoice price to the Profit and Loss Account.

    The loss appears at invoice price inside the Branch Account.

    Fix: Credit the loss at invoice price in the Branch Account, then debit the Branch Account with the loading on it and credit Abnormal Loss, so the Profit and Loss Account bears cost only, less insurance claim.

  • Passing a separate entry for normal loss, or creating a stock reserve on the lost goods.

    Students treat all shortages alike.

    Fix: Do not credit normal loss separately. The lost goods are not in closing stock, so the reserve is made only on actual closing stock. The invoice value of the loss stays charged in the Branch Account, so the branch result bears the loss.

  • Not adjusting returns to head office for loading.

    Returns are shown at invoice price and appear as a normal credit.

    Fix: Credit returns at invoice price in the Branch Account (debit Goods Sent to Branch). Show the loading on them on the debit side of the Branch Account (credit Goods Sent to Branch), so the adjustment is only on net goods sent.

Worked examples

Example 1

A head office sends goods to its branch at cost plus 25%. The opening stock at the branch was ₹30,000 (invoice price), goods sent during the year were ₹1,50,000 (invoice price), and closing stock was ₹36,000 (invoice price). There were no returns, losses or shortages. Find the opening and closing stock reserve, the loading on goods sent, the invoice value of goods sold, and the loading (profit element) earned on those goods.

Show the solution
  1. Loading is 25/125 = 1/5 of invoice price.
  2. Opening stock reserve = 30,000 × 1/5 = ₹6,000.
  3. Closing stock reserve = 36,000 × 1/5 = ₹7,200.
  4. Loading on goods sent = 1,50,000 × 1/5 = ₹30,000. Net goods sent at cost = 1,50,000 − 30,000 = ₹1,20,000.
  5. Goods available for sale at invoice price = 30,000 + 1,50,000 = ₹1,80,000.
  6. Goods sold at invoice price = 1,80,000 − 36,000 = ₹1,44,000.
  7. Loading earned on goods sold = 1,44,000 × 1/5 = ₹28,800.

Answer: Opening reserve ₹6,000; closing reserve ₹7,200; loading on goods sent ₹30,000; goods sold at invoice price ₹1,44,000; loading earned on them ₹28,800.

Example 2

Delhi Traders sends goods to its Jaipur branch at cost plus 20%. Goods sent were ₹2,40,000 at invoice price. Opening stock was ₹24,000 at invoice price. Closing stock was ₹30,000 at invoice price. Goods worth ₹12,000 at invoice price were lost by fire (abnormal), and the insurance company admitted a claim of ₹4,000. Cash sales were ₹2,10,000. Find the loss charged to the Profit and Loss Account and the branch profit (ignore expenses).

Show the solution
  1. Loading is 20/120 = 1/6 of invoice price.
  2. Opening reserve = 24,000 × 1/6 = ₹4,000. Closing reserve = 30,000 × 1/6 = ₹5,000.
  3. Loading on goods sent = 2,40,000 × 1/6 = ₹40,000.
  4. Abnormal loss at invoice price ₹12,000. Loading on it = 12,000 × 1/6 = ₹2,000. Cost of loss = ₹10,000.
  5. Loss to Profit and Loss Account = 10,000 − 4,000 insurance claim = ₹6,000.
  6. Branch Account debit side: Opening stock 24,000 + Goods sent 2,40,000 + Closing stock reserve 5,000 + Loading on abnormal loss 2,000 (debited to the Branch Account, credited to the Abnormal Loss Account) = ₹2,71,000, plus the balancing profit.
  7. Branch Account credit side: Sales 2,10,000 + Closing stock 30,000 + Abnormal loss at invoice price 12,000 + Opening stock reserve 4,000 + Goods sent adjustment (loading) 40,000 = ₹2,96,000.
  8. Balancing figure = 2,96,000 − 2,71,000 = ₹25,000. This is the branch profit.
  9. Abnormal Loss Account: debit 12,000 at invoice price (from the Branch Account) and credit 2,000 for the loading, so the loss stands at cost ₹10,000. Credit the insurance claim 4,000, leaving a balance of ₹6,000 to transfer to the Profit and Loss Account.
  10. Check at cost: opening stock 20,000 + goods sent 2,00,000 = 2,20,000; less closing stock 25,000 and loss 10,000 gives cost of goods sold 1,85,000. Profit = 2,10,000 − 1,85,000 = ₹25,000.

Answer: Abnormal loss charged to the Profit and Loss Account is ₹6,000 (cost ₹10,000 less claim ₹4,000). Branch profit is ₹25,000.

Exam tips

  • Underline whether loading is on cost or on invoice price before writing anything. Many marks are lost on this alone.
  • In the MCQs, find the loading fraction first. It often gives the answer in one line without a full account.
  • Show working notes for each reserve and loading calculation. Examiners award step marks for them.
  • Always state that abnormal loss is taken at cost, less insurance claim. Show the figure clearly.
  • Draw the Branch Account in the Head Office books with all items at invoice price, then adjust. A neat layout earns presentation marks.

Practice questions from Branch (including Foreign Branch) and Departmental Accounts

Branch Accounting: Invoice Price, Loading and Stock Reserve in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Branch Accounting: Invoice Price, Loading and Stock Reserve: frequently asked questions

What is loading in branch accounting?

Loading is the amount by which the invoice price exceeds cost. It is an unearned profit element in goods sent to the branch. It is earned only when the branch sells the goods.

Why is a stock reserve created?

The branch closing stock includes loading, which is profit not yet earned. The stock reserve removes that profit from the accounts. It is brought back as a credit in the next year.

How is abnormal loss treated when goods go to a branch at invoice price?

It is credited to the Branch Account at invoice price, then the loading is reversed so the loss is charged at cost. Any insurance claim is deducted, and the balance goes to the Profit and Loss Account.

Is normal loss shown separately?

No, normal loss is not credited separately in the Branch Account. Its invoice value stays charged there, so the branch profit is reduced and the branch result bears the loss. It is not transferred to the Profit and Loss Account as a separate abnormal item.