Question

The following information pertains to the head office and the branch of KATSE.

Branch inventory on hand at selling price:

1 January 2017..................................................................................R33 500
31 December 2017............................................................................R38 900

Transactions of the branch for the year ended 31 December 2017:

Inventory transferred to the branch (selling price) ......................................... R 200 000
Cash sales at the branch .............................................................................. R 190 200
Settlement discount granted to branch debtors ............................................. R 2 796
Branch administrative expenses paid by head office ..................................... R 15 965
Damaged inventory written off (at cost) ......................................................... R 3 000

Additional information:

1. Inventory is purchased by the head office and supplied to the branch at selling price, which is cost
price plus 25%. During August 2017 inventory with a selling price of R2 175 was stolen at the branch.
No entries have been made to record this theft.

QUESTION 9
Which of the following alternatives represents the correct surplus/deficit in the branch inventory account?
1. R 610 surplus
2. R 610 deficit
3. R1 525 surplus
4. R 525 deficit

Answer 1

	Amount ($)	Amount ($)
Branch inventory
Opening inventory (33500 x 100/125)	33,500.00
Add: Inventory send to the branch	200,000.00
	233,500.00
Less: Inventory sold	190,200.00
		43,300.00
Less:
Damaged inventory written off (3000 x 125/100)	3,750.00
Inventory stolen	2,175.00
		5,925.00
Closing inventory should be		37,375.00
Closing inventory as per accounting records	38,900.00
Less: Actual closing inventory	37,375.00
Surplus	1,525.00

Thus, correct answer to the question is option (3), i.e. the branch inventory account showed a surplus of %1,525.00