CMA Intermediate · Financial Accounting · Branch (including Foreign Branch) and Departmental Accounts
Goods are sent to a branch at cost plus 20% on cost. Closing stock at the branch at invoice price is ₹1,20,000. What stock reserve (loading in closing stock) should be created?
The stock reserve is ₹20,000. Since goods are invoiced at cost plus 20%, loading is 20/120 of invoice value, so 20/120 of ₹1,20,000 gives ₹20,000. Applying 20% directly to invoice price would wrongly give ₹24,000.
- A₹24,000
- B₹20,000Correct
- C₹6,000
- D₹14,400
Explanation
Invoice price is 120% of cost, so loading is 20/120 of invoice price. ₹1,20,000 x 20/120 = ₹20,000. Option ₹24,000 wrongly applies 20% on invoice price instead of on cost.
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