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

Pune Traders has a branch at Nagpur that is treated as a dependent branch. The head office sends goods to the branch at cost plus 25% (invoice price). Goods sent during the year were invoiced at Rs 5,00,000. Under the stock and debtors system, how should the loading (excess of invoice price over cost) on these goods be computed?

The loading is Rs 1,00,000. Since the invoice price is cost plus 25%, it represents 125% of cost, so cost is Rs 4,00,000. The excess of Rs 5,00,000 over Rs 4,00,000 is the loading. Applying 25% to invoice price would wrongly give Rs 1,25,000.

  1. ARs 1,00,000Correct
  2. BRs 1,25,000
  3. CRs 62,500
  4. DRs 80,000

Explanation

Invoice price is 125% of cost, so cost = 5,00,000 x 100/125 = Rs 4,00,000. Loading = 5,00,000 - 4,00,000 = Rs 1,00,000. Rs 1,25,000 is wrong because it applies 25% on the invoice price instead of on cost.

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