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

Goods are invoiced to the Pune branch at cost plus 20% on cost. Goods with an invoice value of ₹30,000 are destroyed by fire at the branch, and the loss is abnormal. At what amount should the abnormal loss be debited to the Abnormal Loss account in the head office books?

The abnormal loss is debited at ₹25,000, the cost of the goods. Invoice price is 120% of cost, so cost is 30,000 × 100/120. The ₹5,000 loading is adjusted through the branch stock reserve or adjustment account and is not part of the loss.

  1. A₹30,000
  2. B₹24,000
  3. C₹5,000
  4. D₹25,000Correct

Explanation

Abnormal loss is carried at cost. Cost = 30,000 × 100/120 = ₹25,000. The remaining ₹5,000 is the loading, removed from the Branch Stock Reserve or Branch Adjustment account. Using ₹24,000 deducts 20% of invoice price, which is the wrong base.

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