Question 3 (b)
Cash sales at the branch (Stock and Debtors method)
3 marks
- Time to write
- About 6 minutes
From an older CBCS paper
Question
Question 3 (b) · 3 marksPARAMOUNT Ltd. Lucknow invoices goods to its Pune and Patna offices at 20% below the list price, which is cost plus 50%, and instructs them to make cash sales at invoice price, and to make credit sales at list price.
Opening Stock at Pune at its cost ₹ 2,30,400.
Goods Sent to Pune (at cost to Lucknow) ₹ 3,30,000.
Cash Sales 74.8% of Net Credit Sales ₹ 4,35,000.
Goods returned by Credit Customers to Pune ₹ 1,35,000.
Goods returned by Pune to Lucknow ₹ 1,08,000.
Loss of Goods by fire (at invoice price) ₹ 9,000, for which the insurance Company paid 80% of cost.
Loss of Goods at Pune through normal pilferage (at list price) ₹ 9,000.
Debtors at Pune:Opening ₹ 30,000
Cash remitted by PunE Branch to HO: ₹ 4,87,305.
Discount Allowed to Debtors ₹ 40,095.
Goods received by Pune till close of the year ₹ 3,81,000.
A Provision for discount on Debtors is to be made at 15% on prompt payments at year end, based on the trend of prompt payments in the year.
Cash remitted by HO to Branch for Expenses: ₹ 27,000
Branch Expenses still outstanding: ₹2,223
The Manager is to get a commission @ 6% of net profits after charging that commission.
Answer:
- Calculate the Cash Sales. [3 Marks]
[Note: Ledger Accounts in detail are not required]
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- CalculateFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- "Cash Sales 74.8% of Net Credit Sales ₹ 4,35,000" is read as: net credit sales are ₹ 4,35,000 and cash sales are 74.8% of them; the answer states this and shows the other reading.
- The opening stock is at the branch's own cost, that is invoice price (standing reading).
- The normal pilferage goes in full to the branch adjustment; the fire loss is abnormal (standing branch rule).
- The discount provision follows the year's ratio of discount allowed to cash collected.
Write it in this order
- 1 Reading of the relationship 1 mark 2 min
- 2 Cash sales computed 1½ marks 3 min
- 3 Split of the remittance cash from debtors ½ mark 1 min
Short on time? Step 2 carries 1½ of the 3 marks: guard its minutes.
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Basis. Cash sales at the branch are debited to Branch Cash and credited to the Branch Stock Account, which the head office keeps at invoice price; cash received from branch debtors is debited to Branch Cash and credited to Branch Debtors. Under the instructions, cash sales are made at invoice price, so they leave the stock account at the price they were sold at.
Reading (paper note). The ₹4,35,000 is the net credit sales (at list price), and the cash sales are 74.8% of it. The cash remitted to Lucknow is read as the branch's cash sales plus the cash it collected from debtors: the branch expenses are met from the ₹27,000 the head office sends for them.
| Item | Working | ₹ |
|---|---|---|
| Cash sales (at invoice price) | 74.8% × 4,35,000 | 3,25,380 |
| Cash collected from branch debtors (balancing figure) | 4,87,305 − 3,25,380 | 1,61,925 |
| Cash remitted by Pune to the head office | 4,87,305 |
Cash sales = ₹3,25,380, at invoice price. The rest of the remittance, ₹1,61,925, is the cash collected from debtors (used in part (c)).
The other reading. If ₹4,35,000 were itself the cash sales, the cash from debtors would be only ₹52,305 and the net credit sales ₹5,81,551.
Probable misprint (for a DU reviewer). The branch figures cannot all be true together. On the reading used here, the Pune stock account at invoice price needs a closing stock in hand of −₹1,86,180: opening stock 2,30,400 + goods received 3,81,000 − returned to Lucknow 1,08,000 − cash sales 3,25,380 − net credit sales at invoice price 3,48,000 − fire 9,000 − pilferage at invoice price 7,200. The branch would have sold and lost more goods than it ever held. The discount does not fit either: ₹40,095 at 15% means prompt payments of ₹2,67,300, more than all the debts settled in the year (cash collected 1,61,925 + discount 40,095 = ₹2,02,020). Reading ₹4,35,000 as the cash sales instead (net credit sales 4,35,000 ÷ 74.8% = ₹5,81,551) makes it worse: closing stock −₹4,13,041. One of the printed figures is probably wrong. The answer works the figures as given, on the paper note's readings, and the result should be checked against an original University copy or the examiner's key.
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Reading of the 74.8% relationship | 1 |
| 2 | Cash sales computed | 1.5 |
| 3 | Split of the remittance (cash from debtors) | 0.5 |
| Total | 3 |
Report a problemopens an email to admin@getkunji.com with the question IDFAH21-Q3balready filled in.