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Difficulty: MediumAccounting for Dependent Branches at Cost Price

Calabar Head Office operates a dependent branch in Uyo, supplying all goods at cost price. For the financial year ended 31 December 2025, the branch recorded the following transactions:

- Opening inventory: ₦15,000
- Goods sent to branch: ₦180,000
- Goods returned to head office: ₦10,000
- Total sales: ₦210,000
- Operating expenses paid by head office: ₦25,000
- Closing inventory: ₦20,000

What is the net profit earned by the Uyo branch for the year?

  1. ₦20,000Answer
  2. B
    ₦45,000
  3. C
    ₦10,000
  4. D
    ₦30,000

Answer

The net profit earned by the Uyo branch is ₦20,000.
The correct answer of ₦20,000 net profit is obtained by deducting the cost of goods sold (₦165,000) from total sales (₦210,000) to find gross profit (₦45,000), and then deducting operating expenses (₦25,000).

Step-by-Step Solution

1
Calculate Net Goods Sent to Branch
₦180,000 - ₦10,000 = ₦170,000
Goods returned by the branch to head office must be deducted from total goods dispatched to determine net goods received.
2
Calculate Cost of Goods Sold (COGS)
₦15,000 + ₦170,000 - ₦20,000 = ₦165,000
COGS is computed as Opening Inventory plus Net Goods Sent minus Closing Inventory.
3
Calculate Gross Profit
₦210,000 - ₦165,000 = ₦45,000
Gross profit is sales revenue minus cost of goods sold.
4
Calculate Net Profit
₦45,000 - ₦25,000 = ₦20,000
Net profit is gross profit minus operating expenses incurred by or for the branch.

Key Concept

Calculation of Net Profit in Dependent Branch Accounts at Cost Price
Estimated Time:1m 30s
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Topics

Accounting for Dependent Branches at Cost Price

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