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

Pune Traders (Head Office) invoices goods to its Nagpur branch at cost plus 20% on cost. During the year, goods invoiced to the branch amounted to Rs 3,60,000 at invoice price. Under the stock and debtors system, the branch stock account is maintained at invoice price. What is the loading (unrealised margin) included in the goods sent to the branch at invoice price?

The loading is Rs 60,000. Because goods are invoiced at cost plus 20%, the markup is 20/120 of invoice price, which is one sixth of Rs 3,60,000. Cost is Rs 3,00,000 and 20% of it is Rs 60,000. Applying 20% to invoice price would be wrong.

  1. ARs 72,000
  2. BRs 60,000Correct
  3. CRs 3,00,000
  4. DRs 54,000

Explanation

Invoice price = cost x 120/100. Loading = invoice price x 20/120 = 3,60,000 x 1/6 = Rs 60,000. Check: cost = 3,00,000; 20% of 3,00,000 = 60,000. Rs 72,000 wrongly takes 20% on invoice price.

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