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Branch accounts

Savithry (Student) (65 Points)

30 April 2019

Answer me for the attached file... Explain me step by step... Plz very urgent...

Answer given in book:

Closing stock at head office-520000 ,closing stock at branch-198000,net profit at head office-3296000,net profit at branch-190000.

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Prakash Gehani (Consultant & Teacher(Whatsapp 8718057907)) (1306 Points)
Replied 01 May 2019

In order to calculate profit branch wise, seprate accounts for branhes and head office is kept and goods are sent to branches at cost plus profit.

Assume Cost price be Rs. 100 therefore selling price be Rs. 180(Cost + 80%) for wholeseller and Rs. 200 (cost + 100%) for consumers.

In above que since goods are sent in bulk quantity to branch therefore goods are sent to branch at Cost + 80% Profit.

So cost price for branch will be Rs. 180 and since branch is selling goods to consumer therefore selling price be Rs. 200, and profit be Rs 20(200-180) in percenrage 10% on sales(20/200×100)

Therefore Gross profit be 190000(190000×10%)
Cost of goods sold = sales - Gross Profit= 1900000-190000= 1710000.

Total goods supplied to branch = 1908000,
so closing stock = 1908000-1710000= 198000.

For head office:

Total goods sold = (1908000-198000)+5706000= 7416000

Note: since all goods sent by head office are not sold by branch therefore it will not be treated as sales by head office and profit on such sale will be treated as unrealised.

Cost of goods sold= 7416000/180%=4120000.

Profit = 7416000-4120000=3296000.

In order to calculate stock at head office we will calculate total cost of goods sold= (1908000+5706000)/180%= 4230000

Closing stock= op stock + Purchase - Cost of goods sold= 450000+4300000-4230000= 520000.

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