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CA Intermediate · Advanced Accounting · Accounting for Branches including Foreign Branches

Chennai HO's branch at Madurai sells goods that HO invoices at cost plus 50% on cost. In a year, branch stock at invoice price: opening Rs 30,000, goods received Rs 3,00,000, closing Rs 45,000. Cash sales were Rs 1,50,000 and credit sales Rs 1,35,000. Assuming no other losses, what is the shortage (pilferage) of stock at invoice price? Is it recorded as abnormal loss at cost?

There is no shortage. Opening stock of Rs 30,000 plus goods received of Rs 3,00,000 less total sales of Rs 2,85,000 gives expected closing stock of Rs 45,000, which equals the actual closing stock. So no loss needs to be recorded.

  1. AShortage Rs 0
  2. BShortage Rs 15,000 at invoice price, Rs 10,000 at costCorrect
  3. CShortage Rs 30,000 at invoice price, Rs 20,000 at cost
  4. DShortage Rs 15,000 at invoice price, Rs 15,000 at cost

Explanation

Expected closing = 30,000 + 3,00,000 - (1,50,000 + 1,35,000 = 2,85,000) = 45,000. This equals actual closing stock, so there is no shortage. Recompute: 3,30,000 - 2,85,000 = 45,000. Hence shortage is nil, and option A is correct.

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