Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Head Office (particularly, the manufacturing concern) supplies goods to its retail branches at wholesale price which is cost plus wholesale profit. The profit attributable to
Head Office (particularly, the manufacturing concern) supplies goods to its retail branches at wholesale price which is cost plus wholesale profit. The profit attributable to such branches is the difference between the sale proceeds of goods at the shops and the wholesale price of the goods sold. For the purpose, it is assumed that the manufacturer would always be able to sell the goods on wholesale terms and thereby realizes profit equal to the difference between the wholesale price and the cost. Many concerns, therefore, invoice goods to such shops at wholesale price and determine profit or loss on sale of goods on this basis. Accordingly, Branch Stock Account or the Trading Account is debited with: (a) the value of opening stock at the Branch, and (b) price of goods sent during the year at wholesale price. It is credited by: (a) sales effected at the shop, and (b) closing stock of goods valued at wholesale price. The value of goods lost due to accident, theft etc. also is credited to the Branch Stock Account or Trading Account calculated at the wholesale price. At this stage, the Branch Stock or Trading Account will reveal the amount of gross profit (or loss). It is transferred to the Branch Profit and Loss Account. On further being debited with the expenses incurred at the shop and the wholesale price of goods lost, the Branch Profit and Loss Account will disclose the net profit (or loss) at the shop. i54 Since the closing stock at the branch has to be valued at wholesale price, it would be necessary to create a stock reserve equal to the difference between its wholesale price and its cost to the head office) by debiting the amount in the Head Office Profit and Loss Account. This Stock Reserve is carried down to the next year and then transferred to the credit of the (Head Office) Profit and Loss Account. Illustration 12 M/s Rahul operates a number of retail outlets to which goods are invoiced at wholesale price which is cost plus 25%. These outlets sell the goods at the retail price which is wholesale price plus 20%. Following is the information regarding one of the outlets for the year ended 31.3.2012 Stock at the outlet 1.4.11 30,000 Goods invoiced to the outlet during the year 3,24,000 Gross profit made by the outlet 60,000 Goods lost by fire ? Expenses of the outlet for the year 20,000 Stock at the outlet 31.3.12 36.000 You are required to prepare the following accounts in the books of Rahul Limited for the year ended 31.3.12 (a) Outlet Stock Account (b) Outlet Profit & Loss Account (c) Stock Reserve Account
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started