Departmental Accounts

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nachiket arora

nachiket arora (Querist)

22 December 2019 While calculating stock reserve what is logic behind the byforcation of transfer and expenses.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

22 May 2020 Many a times, it so happens that a manufacturer, consignor or a head office does not directly engage in selling its products. It instead sends or consigns the goods to a profit centre--a dedicated centre for selling its products. The profit centre in case of a consignor is a consignee and in the case of a head office, its branch or retail outlet. Now when the principal sends the goods to the profit centre, it issues/transfers the goods at a price which is higher than the cost of production of those goods. This price is generally called Invoice Price (I.P.) and this is the value at which the branch/consignor records the receipt of the same. When the branch sells these goods it sells at a price greater than the I.P. thus earning a profit which has two components-- The mark up on the cost of production (i.e., the difference between the I.P. and the cost of production), and The profit made by the branch/consignee (i.e., the difference between seeling price of the branch and I.P.)

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