CA Intermediate · Advanced Accounting · Accounting for Branches including Foreign Branches
Delhi Traders Ltd sends goods to its Jaipur branch at cost plus 25% on cost. On 31 March, the branch's closing stock is valued at the invoice price of ₹60,000. What is the amount of unrealised profit (stock reserve) to be created on this closing stock?
The stock reserve is ₹12,000. Goods are invoiced at cost plus 25%, so the invoice price is 125% of cost and the profit loading is 25/125, or one-fifth, of invoice value. One-fifth of ₹60,000 closing stock is ₹12,000.
- A₹15,000
- B₹12,000Correct
- C₹9,600
- D₹48,000
Explanation
Invoice price is 125% of cost, so the loading is 25/125 of invoice price. Loading = 60,000 × 25/125 = ₹12,000. Taking 25% of the invoice price gives ₹15,000, which is wrong because the markup is on cost, not on invoice price.
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