What is the branch stock account (excess of list price over invoice price in credit sales.)
Answers
Answer:
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The following points highlight the top 2 basis for final account system of accounting for branch. The basis are: 1. At Wholesale Price Basis 2. At Cost Price/Invoice Price Basis (i.e.).
Basis # 1. At Wholesale Price Basis:
Wholesale and Retail Profit at Branch:
The discussion made so far reveals the total profit earned by a branch, i.e., no distinction is made between the wholesale profit and retail profit. For example, the cost price of product is Rs. 100, the wholesale price is Rs. 140 and the retail price is Rs. 150.
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Now, if that product is sent to a Branch and the same sold by the branch, the profit will be Rs. 50 (i.e., 150 – 100). That is, in other words, the profit earned by a branch is Rs. 10 only. Rs. 40 could have been made by selling the same on wholesale basis.
In order to understand the real profit at retail Branches, it is the practice to charge the Branch with wholesale price and thereafter determine the profit. It is to be remembered that H.O. Trading Account will be credited with goods sent to branch at wholesale price only.
Similarly, closing stock at Branch should be valued at wholesale price and Head Office must maintain a proper reserve on closing stock of branch. The same is charged against Profit & Loss Account.
Thus, the entry will be:
Remember:
(a) H.O. Profit = Excess of Wholesale Price over the Cost to H.O.
(b) Branch Profit = Excess of Selling Price over the Wholesale Price