Branch Accounts (Stock & Debtors System) with list and invoice prices

1. The Branch Stock Account is kept at invoice price, and every sale is credited to it at the value actually realised. The excess of realisation over invoice price is carried to the Branch Adjustment Account as additional gross profit, the account in which the DU prescribed text strikes the branch's profit: the loading on opening and closing stock passes through the Stock Reserve and the gross profit is transferred from Branch Adjustment to Branch P&L (entries 14–16).
2. Customer returns to the branch re-enter branch stock at list price, so the invoice value and the surplus reverse together. Customer returns sent direct to the head office never come back into branch stock: the Goods Sent to Branch Account is debited at invoice price and the unearned surplus of ₹6,000 is withdrawn from the Adjustment Account. The surplus is therefore struck on net credit sales.
3. Locally bought goods carry no loading. They enter Branch Stock at cost, are sold for cash at cost plus 20%, and their entire margin is credited to the Adjustment Account.
4. Inter-branch transfers are recorded at invoice price both ways, and the loading on the net inward transfer is neutralised: goods received from another branch are treated like goods received from the head office, and goods sent to another branch like goods returned to it.
5. Normal and abnormal losses are treated differently. Normal pilferage is charged at its full invoice price to the Branch Adjustment Account (the DU text's entry 11 for a normal loss of stock), so it is absorbed in gross profit. The abnormal fire loss is split: loading to Adjustment, cost less the insurance claim to Branch P&L.
6. Because closing stock is carried at invoice price, the loading in it is removed through a stock reserve (WN7): Branch Adjustment is debited and Stock Reserve credited (entry 14).

Manager's commission = 37,418 × 6/106 = ₹2,118, and 6% of ₹35,300 is ₹2,118 ✓.

Every figure restated at cost. Net sales = 92,000 + 57,600 + 2,90,000 − 60,000 − 30,000 = ₹3,49,600.

The normal pilferage is not credited here: as a normal loss it is part of the cost of the goods sold. Gross profit also checks a third way as a realised-margin build-up: cash sales of H.O. goods at invoice price 92,000 × ⅙ = ₹15,333.33, plus net credit sales at list 2,00,000 × ⅓ = ₹66,666.67, plus the local margin ₹9,600 = ₹91,600, less the ₹4,000 cost of the normal pilferage = ₹87,600, with zero residual.

The other reading of "at its cost". If "its cost" meant the head office's cost, the opening stock would be grossed up to ₹28,800 (reserve ₹4,800); closing stock is the balancing figure, so the head-office goods in it would rise to ₹20,000 at IP (reserve ₹3,333.33). Gross profit (₹87,600), commission and net profit are the same under both readings.

The other reading: local goods sold at list price

The paper gives one cash-sales figure and says only that cash sales are made at invoice price, so this answer sells the locally bought goods at their invoice-price equivalent, cost plus 20%. If they were sold at list price instead, cost plus 50%, the ₹48,000 of local goods sold would bring in ₹72,000 of the ₹1,49,600, head-office goods would account for only ₹77,600 of the cash sales, and more head-office goods would remain in closing stock.

Closing debtors, the provision for discount, goods in transit and every other account are the same under both readings.

Result: closing debtors ₹22,000 · provision for discount ₹2,970 · closing stock ₹27,200 (H.O. goods ₹15,200 at IP plus local goods ₹12,000) · goods in transit ₹10,000 · Gross Profit ₹87,600 · commission ₹2,118 · Net Profit ₹35,300.