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

Dept P transfers goods costing Rs 60,000 to Dept Q at cost plus 25%. At year end, Dept Q holds 40% of these goods unsold. Which unrealised profit must be eliminated from the combined stock figure of the firm?

The unrealised profit to be eliminated is Rs 6,000. Goods costing Rs 60,000 are transferred at Rs 75,000, loading Rs 15,000 of profit, and 40% of these remain unsold in Dept Q, so 40% of Rs 15,000 is unrealised.

  1. ARs 3,000Correct
  2. BRs 4,800
  3. CRs 6,000
  4. DRs 12,000

Explanation

Transfer price = 60,000 x 1.25 = 75,000. Profit loaded = 15,000. Unsold portion 40% so unrealised profit = 6,000. Rs 6,000 is therefore correct as computed, not 3,000.

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