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

Delhi head office sends goods to its branch at cost plus 25%. Goods sent to branch during the year were Rs 3,00,000 at invoice price. Opening branch stock at invoice price was Rs 60,000 and closing branch stock at invoice price is Rs 90,000. What is the amount of loading on the goods sent (to be credited to Branch Adjustment Account as per the loading on goods sent) and the stock reserve required at year end respectively?

Loading is 25 on 125 of invoice price, i.e. one-fifth. Goods sent of Rs 3,00,000 carry loading of Rs 60,000, and closing stock of Rs 90,000 requires a stock reserve of Rs 18,000. Applying 25% to invoice price would be the wrong base.

  1. ARs 60,000 and Rs 18,000Correct
  2. BRs 75,000 and Rs 22,500
  3. CRs 60,000 and Rs 22,500
  4. DRs 48,000 and Rs 18,000

Explanation

Cost plus 25% means loading is 25/125 = 1/5 of invoice price. Loading on goods sent = 3,00,000 x 1/5 = Rs 60,000. Closing stock reserve = 90,000 x 1/5 = Rs 18,000. Using 25% of invoice price (Rs 75,000 and Rs 22,500) is the wrong base.

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