Alpha Ltd. has a retail shop under the supervision of a manager. The ratio of gross profit at selling price is constant at 25 per cent throughout…

CA Intermediate · Advanced Accounting · MTP · May 2025
Alpha Ltd. has a retail shop under the supervision of a manager. The ratio of gross profit at selling price is constant at 25 per cent throughout the year to 31 st March, 2025. Branch manager is entitled to a commission of 10 per cent of the profit earned by his branch, calculated before charging his commission but subject to a deduction from such commission equal in 25 per cent of any ascertained deficiency of branch stock. All goods were supplied to the branch in head office. The following details for the year ended 31 st March, 2025 are given as follows: Particulars ₹ ₹ Opening Stock (at cost) 74,736 Chargeable expenses 49,120 Goods sent to branch (at cost) 2,89,680 Closing Stock (Selling Price) 1,23,328 Sales 3,61,280 Manager's commission paid on account 2,400 From the above details, you are required to calculate the commission due to manager for the year ended 31 st March, 2025.

Suggested Answer and Working Notes:

Step 1: Calculation of Deficiency Branch stock account (at invoice price) Particulars ₹ Particulars ₹ To Opening Stock (74,736 + 1/3 of 74,736) 99,648 By Sales 3,61,280 To Goods sent to Branch A/c (2,89,680 + 1/3 of 2,89,680) 3,86,240 By Closing Stock 1,23,328 By Deficiency at sale price [Balancing figure] 1,280 4,85,888 4,85,888 Step 2: Calculation of Net Profit before Commission Branch account Particulars ₹ Particulars ₹ To Opening (74,736 + 1/3 of 74,736) 99,648 By Sales 3,61,280 To Gross sent to Branch A/c (2,89,680 + 1/3 of 2,89,680) 3,86,240 By Closing Stock 1,23,328 To Expenses 49,120 By Stock Reserve A/c 24,912 To Stock Reserve A/c (₹ 1,23,328 x 25/100) 30,832 By goods sent to Branch A/c 96,560 To Net Profit – subject to manager's commission 40,240 6,06,080 6,06,080 Step 3: Calculation of Commission still due to manager ₹ A Calculation at 10% profit before charging his commission [₹ 40,240 x 10/100] 4,024 B Less: 25% of cost of deficiency in stock (25% of (75% of 1,280) (240) C Commission for the year [A-B] 3,784 D Less: Paid on account (2,400) E Balance due (C-D) 1,384

Topics: Accounting for Branches including foreign branch

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