CA Inter P1 · Chapter 13
Accounting for Branches including Foreign Branches MCQs with Answers
10 multiple-choice questions on Accounting for Branches including Foreign Branches for CA Inter P1 Advanced Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Case: Manav Ltd sends goods to its branch at cost plus 25%. During the year, goods invoiced at ₹5,00,000 were sent. The loading included in the goods sent is:
- A) ₹1,25,000
- B) ₹1,00,000
- C) ₹4,00,000
- D) ₹93,750
Show answer & explanation
Answer: B) ₹1,00,000
If cost is 100, invoice price is 125 and loading is 25, i.e. 25/125 = 1/5 of invoice price. Loading = 5,00,000 x 1/5 = ₹1,00,000. Applying 25% directly to the invoice price (1,25,000) uses the wrong base; 4,00,000 is the cost of the goods sent.
Question 2
Case: Nupur Ltd follows the stock and debtors system for its branch. Goods are invoiced to the branch at cost plus 33 1/3%, and the branch sells only at invoice price. Opening branch stock at invoice price was ₹1,20,000, goods sent during the year at invoice price ₹6,00,000 and closing stock at invoice price ₹1,50,000. There was no shortage or surplus. The gross profit transferred from the Branch Adjustment Account is:
- A) ₹1,12,500
- B) ₹1,90,000
- C) ₹1,50,000
- D) ₹1,42,500
Show answer & explanation
Answer: D) ₹1,42,500
Loading = 33 1/3 / 133 1/3 = 1/4 of invoice price. Goods sold at invoice price = 1,20,000 + 6,00,000 - 1,50,000 = 5,70,000. Since sales are at invoice price, gross profit equals loading on goods sold = 5,70,000 x 1/4 = ₹1,42,500. Applying 1/3 to invoice price (1,90,000) overstates the profit.
Question 3
Case: At year end, the Branch Account in the head office books of Omkar Ltd shows a debit balance of ₹8,40,000, while the Head Office Account in the books of its independent branch shows a credit balance of ₹7,90,000. Cash of ₹35,000 remitted by the branch and goods of ₹15,000 sent by the head office are in transit. After accounting for the items in transit, the agreed balance of the inter-office accounts is:
- A) ₹8,05,000
- B) ₹8,40,000
- C) ₹8,55,000
- D) ₹7,90,000
Show answer & explanation
Answer: A) ₹8,05,000
From the head office side: 8,40,000 - cash in transit 35,000 = 8,05,000. From the branch side: 7,90,000 + goods in transit 15,000 = 8,05,000. Both equal ₹8,05,000, confirming the reconciliation.
Question 4
Case: Pallavi Ltd has a foreign branch whose operations are integral to those of the head office. When translating the branch trial balance under AS 11, fixed assets of the branch are translated at:
- A) The opening rate for the year
- B) The average rate for the year
- C) The closing rate
- D) The exchange rate on the date of acquisition of the fixed assets
Show answer & explanation
Answer: D) The exchange rate on the date of acquisition of the fixed assets
For an integral foreign operation, AS 11 requires translation as if the transactions had been carried out by the reporting enterprise itself. Non-monetary items carried at historical cost, such as fixed assets, are translated at the exchange rate on the date of the transaction (acquisition), and depreciation is translated at the same rate.
Question 5
Under AS 11, in translating the financial statements of a non-integral foreign operation, assets and liabilities (both monetary and non-monetary) are translated at:
- A) Historical rates at the dates of acquisition
- B) The rate prevailing at the date of the last revaluation
- C) The average rate for the year
- D) The closing rate
Show answer & explanation
Answer: D) The closing rate
For a non-integral foreign operation, AS 11 requires all assets and liabilities, monetary and non-monetary, to be translated at the closing rate, while income and expense items are translated at exchange rates at the dates of the transactions (an average rate may be used as an approximation). The resulting differences go to the foreign currency translation reserve.
Question 6
Case: The integral foreign branch of Qadir Ltd holds machinery costing USD 50,000, acquired when the rate was ₹70 per USD. Depreciation is charged at 10% on cost. The closing rate is ₹83 and the average rate for the year is ₹78. The depreciation to be shown in the translated branch statement of profit and loss is:
- A) ₹35,000
- B) ₹3,90,000
- C) ₹3,50,000
- D) ₹4,15,000
Show answer & explanation
Answer: C) ₹3,50,000
Depreciation in USD = 50,000 x 10% = 5,000. For an integral foreign operation, depreciation is translated at the same historical rate used for the related asset: 5,000 x ₹70 = ₹3,50,000. The closing rate is for monetary items and the average rate for other revenue items.
Question 7
Case: The integral foreign branch of Rohan Ltd has trade receivables of USD 12,000 at the year end. The opening rate was ₹80, average rate ₹81.50 and closing rate ₹83 per USD. The receivables are translated at:
- A) ₹9,78,000
- B) ₹9,96,000
- C) ₹9,60,000
- D) ₹9,72,000
Show answer & explanation
Answer: B) ₹9,96,000
Trade receivables are monetary items, which AS 11 requires to be translated at the closing rate. Translated amount = USD 12,000 x ₹83 = ₹9,96,000. Using the average rate (USD 12,000 x 81.50 = 9,78,000) is appropriate only for income and expense items.
Question 8
Which of the following indicates that a foreign branch of Sujal Ltd is an integral foreign operation under AS 11?
- A) The branch operates with a significant degree of autonomy in its management decisions
- B) Most of the branch's costs are paid in the local currency and its sales are mainly to local customers in local currency
- C) The branch sells only goods imported from the head office and remits the sale proceeds to the head office
- D) The branch raises its own finance locally and its cash flows are largely independent of the head office
Show answer & explanation
Answer: C) The branch sells only goods imported from the head office and remits the sale proceeds to the head office
An integral foreign operation carries on business as if it were an extension of the reporting enterprise's operations; a typical example given in AS 11 is a branch that sells goods imported from the reporting enterprise and remits proceeds to it. Local financing, local costs and sales, and significant autonomy are indicators of a non-integral foreign operation.
Question 9
Case: Under the debtors system, Tanmay Ltd maintains a Branch Account. Branch data at cost: opening stock ₹40,000, opening debtors ₹25,000, goods sent by head office ₹2,00,000, cash remitted by the branch to head office (cash sales and collections) ₹2,30,000, branch expenses paid by head office ₹18,000, closing stock ₹50,000 and closing debtors ₹30,000. The branch profit is:
- A) ₹30,000
- B) ₹27,000
- C) ₹22,000
- D) ₹45,000
Show answer & explanation
Answer: B) ₹27,000
Branch Account debit side: opening stock 40,000 + opening debtors 25,000 + goods sent 2,00,000 + expenses 18,000 = 2,83,000. Credit side: cash remitted 2,30,000 + closing stock 50,000 + closing debtors 30,000 = 3,10,000. Profit = 3,10,000 - 2,83,000 = ₹27,000.
Question 10
Case: Under the stock and debtors system, goods are invoiced to the branch of Udit Ltd at cost plus 20% and sold at invoice price. At invoice price: opening branch stock ₹80,000, goods sent ₹4,00,000, sales ₹3,90,000 and closing stock as per physical count ₹84,000. The shortage of stock at cost is:
- A) ₹4,800
- B) ₹6,000
- C) ₹1,000
- D) ₹5,000
Show answer & explanation
Answer: D) ₹5,000
Expected closing stock at invoice price = 80,000 + 4,00,000 - 3,90,000 = 90,000. Physical stock is 84,000, so shortage at invoice price = 6,000. At cost = 6,000 x 100/120 = ₹5,000; the loading of 1,000 is reversed through the Branch Adjustment Account.