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

Delhi Head Office sends goods to its Jaipur branch at cost plus 25% on cost. The branch opening stock at invoice price was Rs 50,000, goods received from HO at invoice price Rs 4,00,000, and closing stock at invoice price was Rs 75,000. What is the amount of the stock reserve (loading on closing stock) to be carried in the books at year end?

The stock reserve at year end is Rs 15,000. Goods are invoiced at cost plus 25%, so loading is 25/125, or 20%, of invoice price. Applying 20% to closing stock of Rs 75,000 gives Rs 15,000. Using 25% would wrongly give Rs 18,750.

  1. ARs 18,750
  2. BRs 15,000Correct
  3. CRs 12,000
  4. DRs 10,000

Explanation

Loading is 25/125 = 20% of invoice price. Closing stock at invoice price Rs 75,000 x 20% = Rs 15,000. Rs 18,750 wrongly uses 25% of invoice price; Rs 10,000 is the loading on opening stock.

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