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

Ganga Traders, Kanpur, sends goods to its dependent branch at Lucknow at cost plus 25%. During the year goods of invoice value ₹6,00,000 were sent to the branch, and goods of invoice value ₹60,000 were returned by the branch to the head office. What is the loading (unrealised profit element) included in the net goods sent to the branch at invoice price?

The loading is ₹1,08,000. Net goods sent at invoice price are ₹5,40,000 after returns, and because invoice price is cost plus 25%, the profit loading equals 25/125, or one-fifth, of invoice price. One-fifth of ₹5,40,000 is ₹1,08,000.

  1. A₹1,35,000
  2. B₹1,20,000
  3. C₹1,08,000Correct
  4. D₹90,000

Explanation

Net goods at invoice price = 6,00,000 − 60,000 = 5,40,000. Invoice price is 125% of cost, so loading is 25/125 = 1/5 of invoice price: 5,40,000 × 1/5 = 1,08,000. Taking 25% of invoice price gives 1,35,000, which is the wrong base. Ignoring returns gives 1,20,000.

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