CA Inter P1 · Chapter 13 · Question 2 of 10
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:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) ₹1,42,500
Explanation
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.
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