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Difficulty: MediumAccounting for Dependent Branches at Cost Price

Port Harcourt Head Office operates a dependent branch in Owerri, supplying all goods at cost price. For the financial year ended 31 December 2025, the branch records showed the following transactions:

- Branch Stock (1 January 2025): ₦12,000
- Goods sent to Branch from Head Office: ₦60,000
- Goods returned by Branch to Head Office: ₦3,000
- Cash Sales: ₦45,000
- Credit Sales: ₦38,000
- Cash received from Debtors: ₦32,000
- Branch Stock (31 December 2025): ₦15,000

What is the gross profit realized by the Owerri Branch for the year?

  1. A
    ��23,000
  2. B
    ₦26,000
  3. ₦29,000Answer
  4. D
    ₦41,000

Answer

₦29,000
The gross profit of ₦29,000 is calculated by deducting cost of goods sold (₦54,000) from total branch sales (₦83,000). Total sales comprise cash sales (₦45,000) plus total credit sales (₦38,000). Cost of goods sold is opening stock (₦12,000) plus net goods sent (₦60,000 - ₦3,000 = ₦57,000) minus closing stock (₦15,000).

Step-by-Step Solution

1
Calculate Total Sales
Total Sales = ₦45,000 (Cash Sales) + ₦38,000 (Credit Sales) = ₦83,000
Branch turnover includes both cash sales and total credit sales made during the period.
2
Calculate Net Goods Sent to Branch
Net Goods Sent = ₦60,000 - ₦3,000 = ₦57,000
Goods returned to Head Office must be deducted from the total goods dispatched.
3
Calculate Cost of Goods Sold (COGS)
COGS = ₦12,000 (Opening Stock) + ₦57,000 (Net Goods Sent) - ₦15,000 (Closing Stock) = ₦54,000
Cost of sales is determined by adding net goods received to opening stock and deducting closing stock.
4
Determine Gross Profit
Gross Profit = ₦83,000 (Total Sales) - ₦54,000 (COGS) = ₦29,000
Gross profit is the excess of total branch revenue over the cost of goods sold.

Key Concept

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

Accounting for Dependent Branches at Cost Price

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