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

Sunrise Traders of Pune sends goods to its Nagpur branch at cost plus 25% on cost. At the year end, stock at the Nagpur branch is ₹60,000 at invoice price. What amount should be carried to the Stock Reserve (loading in unsold stock) at the year end?

The stock reserve is ₹12,000. Goods are invoiced at cost plus 25%, so the loading is 25/125, or 20%, of invoice price. Applying 20% to unsold stock of ₹60,000 gives ₹12,000, which is the unrealised profit to be eliminated.

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

Explanation

Invoice price is 125% of cost, so loading is 25/125 = 20% of invoice price. Loading in closing stock = 60,000 × 20% = ₹12,000. Taking 25% of the invoice value (₹15,000) uses the wrong base, because the 25% is on cost.

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