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

Rudra Traders, Pune, sends goods to its dependent branch at cost plus 25% (invoice price). At year end the branch holds unsold goods with an invoice value of ₹60,000. What amount of stock reserve (unrealised profit loading) should the head office carry on this closing stock?

The stock reserve is ₹12,000. Goods are invoiced at cost plus 25%, so the loading is 25/125 of the invoice value, not 25% of it. One-fifth of ₹60,000 gives ₹12,000, which is the unrealised profit in the branch closing stock.

  1. A₹12,000Correct
  2. B₹15,000
  3. C₹10,000
  4. D₹48,000

Explanation

Invoice price = cost × 125%, so the loading is 25/125 (one-fifth) of invoice price. ₹60,000 × 25/125 = ₹12,000. The figure ₹15,000 wrongly takes 25% of the invoice price, which is the wrong base.

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