Kano Enterprises transfers goods to its Kaduna dependent branch at an invoice price calculated as cost plus . At the beginning of the financial year, the branch held inventory with an invoice value of . At the close of the year, branch inventory at invoice price was . What is the amount of the net increase in the provision for unrealized profit (stock reserve) to be credited to the stock reserve account at year-end?
Cevap: 3000 ₦
Cevap
The net increase in the provision for unrealized profit (stock reserve) is ₦3,000.
Unrealized profit contained in inventory invoiced at cost plus 25% is calculated using a profit margin of 20% (1/5) on invoice price. The opening stock reserve is 20% of ₦40,000 = ₦8,000, and the closing stock reserve is 20% of ₦55,000 = ₦11,000. Deducting the opening reserve balance from the closing reserve balance gives a net increase of ₦3,000.
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Calculation of Net Increase in Branch Stock Reserve at Invoice Price