Following is the information of Kullu Branch of M/s Best Enterprises of Shimla for the year ending 31 March 2023:

(1) Goods are invoiced to the branch at cost plus 20%

(2) Branch sold goods at invoice price plus 25%.

(3)Other Information is as follows:

(i) Stock (at cost price) as on 1 April, 2022 is 2,25,000

(ii) Goods sent by Head office to branch during the year (at cost price) are 14,85,000

(iii) Goods returned by Branch to Head office during the year (at Invoice price) are 75,000

(iv) Sales by the branch during the year 19,50,000

(v) Expenses incurred at Branch 56,000.

You are required to ascertain the following:-

(a) Profit earned by the Branch by Preparing Trading and profit and loss account for the year ended 31 March 2023

(b) Also find the stock reserve on Closing stock

To solve this problem, we will need to prepare the Trading and Profit and Loss Account for the Kullu Branch, considering the information provided.

### Key Concepts:
- The goods are invoiced at **cost plus 20%** by the head office to the branch.
- The branch sells goods at **invoice price plus 25%**.

The following steps will help us find the profit and the stock reserve:

### Step 1: Prepare the Trading Account

#### Trading Account for the Year Ended 31 March 2023:

| Particulars                        | Amount (₹) |
|-------------------------------------|------------|
| **To Opening Stock** (at cost)      | 2,25,000   |
| **To Goods Sent by H.O.** (at cost) | 14,85,000  |
| **Less: Goods Returned to H.O.**    | (75,000 ÷ 1.20 = 62,500) |
| **Net Goods Sent by H.O.**          | 14,22,500  |
| **To Gross Profit c/d**             | (Calculated below) |
| **Total**                           |            |

### Step 2: Calculate the Sales and Closing Stock at Cost

#### Sales:
The branch sells goods at **invoice price plus 25%**. The total sales amount is ₹19,50,000 (invoice price + 25%).
To find the **cost price** of goods sold, we need to remove the 25% profit from the sales figure.

The **cost of goods sold** is:
\[
\text{Cost of Goods Sold (COGS)} = \frac{\text{Sales}}{1 + 0.25} = \frac{19,50,000}{1.25} = 15,60,000
\]

#### Closing Stock:
The cost of goods available for sale is:
\[
\text{Cost of Goods Available for Sale} = \text{Opening Stock} + \text{Net Goods Sent by H.O.}
\]
\[
\text{Cost of Goods Available for Sale} = 2,25,000 + 14,22,500 = 16,47,500
\]
Now, subtract the **cost of goods sold** to find the **closing stock**:
\[
\text{Closing Stock (at cost)} = \text{Cost of Goods Available for Sale} - \text{Cost of Goods Sold}
\]
\[
\text{Closing Stock (at cost)} = 16,47,500 - 15,60,000 = 87,500
\]

### Step 3: Gross Profit Calculation
Gross profit is the difference between the sales and the cost of goods sold:
\[
\text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold} = 19,50,000 - 15,60,000 = 3,90,000
\]

### Step 4: Prepare the Profit and Loss Account

#### Profit and Loss Account for the Year Ended 31 March 2023:

| Particulars                | Amount (₹) |
|----------------------------|------------|
| **To Expenses**             | 56,000     |
| **To Net Profit c/d**       | 3,34,000   |
| **Total**                   | 3,90,000   |
| **By Gross Profit b/d**     | 3,90,000   |

### Step 5: Stock Reserve on Closing Stock
The goods sent by the Head Office to the branch are invoiced at **cost plus 20%**. Therefore, the invoice price includes a 20% profit loading. Since the closing stock is valued at cost price, the stock reserve is based on the profit element included in the invoice price of the closing stock.

The **stock reserve** on closing stock is calculated as follows:
\[
\text{Stock Reserve} = \text{Closing Stock} \times \frac{20}{120}
\]
\[
\text{Stock Reserve} = 87,500 \times \frac{20}{120} = 14,583.33
\]
Rounding it off, the stock reserve is ₹14,583.

### Summary:
- **Gross Profit** = ₹3,90,000
- **Net Profit** = ₹3,34,000
- **Stock Reserve on Closing Stock** = ₹14,583

---

Would you like more details or have any further questions?

Here are 5 related questions to deepen your understanding:
1. How would the profit change if the markup on sales increased?
2. What happens to the stock reserve if the closing stock increases?
3. How does the return of goods to the head office affect the branch profit?
4. Can you explain how the cost-plus system affects inventory valuation?
5. How would the Trading Account differ if goods were sold at a discount?

**Tip**: Always carefully differentiate between cost price and invoice price when dealing with markups or margins.

Following is the information of Kullu Branch of M/s Best Enterprises of Shimla for the year ending 31 March 2023: (1) Goods are invoiced to the branch at cost plus 20%. (2) Branch sold goods at invoice price plus 25%. (3) Other Information is as follows: (i) Stock (at cost price) as on 1 April, 2022 is 2,25,000 (ii) Goods sent by Head office to branch during the year (at cost price) are 14,85,000 (iii) Goods returned by Branch to Head office during the year (at Invoice price) are 75,000 (iv) Sales by the branch during the year 19,50,000 (v) Expenses incurred at Branch 56,000. You are required to ascertain the following: (a) Profit earned by the Branch by Preparing Trading and profit and loss account for the year ended 31 March 2023 (b) Also find the stock reserve on Closing stock.

Learn how to calculate the profit earned by the Kullu Branch of M/s Best Enterprises for the year ending 31 March 2023, including the preparation of the Trading and Profit & Loss Account and the calculation of stock reserve on closing stock. Key concepts include markup, cost of goods sold, and stock reserve.

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