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

A branch receives goods from head office at 20% above cost. In the head office books, goods sent to branch of ₹2,40,000 (invoice price) are recorded. The correct entry to remove the loading on goods sent is:

Loading is 20/120 of ₹2,40,000, which is ₹40,000. The entry debits Goods Sent to Branch account and credits Branch Adjustment account with ₹40,000, taking the loading out of the goods-sent figure and holding it as unrealised profit.

  1. AGoods Sent to Branch A/c Dr ₹40,000 to Branch Adjustment A/c ₹40,000Correct
  2. BGoods Sent to Branch A/c Dr ₹48,000 to Branch Adjustment A/c ₹48,000
  3. CBranch Adjustment A/c Dr ₹40,000 to Goods Sent to Branch A/c ₹40,000
  4. DBranch A/c Dr ₹40,000 to Branch Adjustment A/c ₹40,000

Explanation

Loading = 20/120 x 2,40,000 = ₹40,000. Goods Sent to Branch (a credit balance at invoice price) is debited to reduce it by the loading and Branch Adjustment is credited. Using 20% of invoice price gives the wrong ₹48,000.

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