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

Head office in Pune keeps branch books under the stock and debtors system, with the Branch Stock Account at invoice price (cost plus 25%). Data for the Nashik branch: opening stock ₹80,000; goods sent by head office ₹4,00,000; goods returned by the branch to head office ₹20,000; net sales (cash and credit, at invoice price) ₹3,60,000; closing stock as physically verified ₹90,000. All figures except net sales are at invoice price. The shortage is abnormal. What amount is transferred to the Abnormal Loss Account, at cost?

The abnormal loss transferred is ₹8,000 at cost. The branch stock account shows expected closing stock of ₹1,00,000 at invoice price against ₹90,000 actually held, so the shortage is ₹10,000 at invoice price. Removing the 25% loading, cost is ₹10,000 × 100/125, which is ₹8,000.

  1. A₹10,000
  2. B₹8,000Correct
  3. C₹12,500
  4. D₹2,000

Explanation

Expected closing stock = 80,000 + 4,00,000 − 20,000 − 3,60,000 = 1,00,000 at invoice price. Physical stock is 90,000, so the shortage is 10,000 at invoice price. Cost = 10,000 × 100/125 = 8,000. Transferring 10,000 would include the unrealised loading, which is wrong. 12,500 grosses up in the wrong direction.

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