In problems of Branch Accounting in the books of H.O., under Debtors method we cancel the load on Goods sent to Branch, so stock with branches are at cost, then why do we write Stock reserve against opening & closing stock with Branch?
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Branch Accounting
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We write the load off the opening and closing stock when they are valued at invoice price.
The stock is valued by multiplying the physical quantity with the invoice price per unit. Thus we need to write the load off the opening as well as closing stock.
But while sending the goods at I.P. we cancel the load , so that makes the goods sent at cost price, then why should stock reserve be cancelled?
bcoz the stock, when valued is taken at IP and not the CP.
See, at the end of the accounting period, a physical verification of the stock is done and the qty in stock is multiplied by the IP per unit. Thus stock is at Invoice Price, thus stock reserve is created to bring it to CP.
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