Branch Account - Invoice Price - By Saheb Academy - YouTube

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hi everyone this is the third video of branch accounts chapter and in this

video we are going to see What is meant by invoice price and the accounting

treatment that is required when the branch account problem is based on

invoice price all right so let's understand what is invoice price see

when the goods are being sent from head office to branch at a price higher than

cost price - at a price higher than cost price then it is known as Goods sent at

an invoice price why is it higher than cos price that is because see for that

you have to understand the mathematical formula of invoice price see invoice price

is equal to cost + profit so to arrive at invoice price the cost is

added with a percentage of profit okay so invoice price is equal to cost plus

profit and this profit is also known as in technical terms is also known as

loading okay in most of our books it is mentioned as loading so we will use that

word from now onwards all right see invoice price is equal to cost plus profit

let's say a company incurred cost of thousand rupees to produce a product

okay now it is sending that good good to its branch but it is not sending it at

cost it is sending it at invoice price by adding a margin of profit that is 200

right there is 20% off thousand so 200 is added with 1000 to arrive at an

invoice price 1200 so this 1200 is the invoice

price so then thousand is cost and this 200 is

loading and the percentage of loading is 20 percent all right you got the idea

okay now let's see the calculation required to calculate the invoice price

from questions now let's see this example Goods costing two lakh are sent

to branch at cost plus 20% so here they have said goods costing 2 Lakhs

okay Goods costing 2 Lakhs are sent to branch all right this is always

given in the question in the main content of the problem it is always

given in the question good this much cost of goods are being sent to branch

it is given here 2 Lakhs so that becomes our cost

we know that Invoice Price = Cost + Profit right so to find invoice

price first will take that cost 2 Lakhs all right and then we need profit right

we need profit the loading so at cost + 20% so they have said

Cost + 20% means this percentage is

based on cost price okay twenty percent on cost so we will take 20% on

cost so cost is given here right 2 Lakhs so we will take 20 percent of 2 Lakhs

see 200,000 x 20% that is equal to 40,000 all right

so 40,000 would be the loading or the profit and then invoice price would

be 240,000 see this is how you find the invoice price alright

easy right now let's see another problem see goods costing 150,000 are sent

to branch at 30% above cost now here also they have said goods

costing 150,000 so we got the cost that is 150,000

150,000 plus now profit or loading here they have said

at 30% above cost. Above cost means 30% of cost okay in simple

terms it means 30% of cost so don't get confused

alright they just twist the words so add thirty percent above cost now thirty

percent above cost means 150000 x 30% that is equal to 45,000

45,000 alright 45,000 so we get 195,000

195,000 easy right this is how you find the invoice price

we have the formula right invoice price and what

is equal to cost plus profit okay all right now let's see another example now

here's the third example goods costing for like twenty thousand are sent to

branch so they have given us good sent to branch at the cost price for like

twenty thousand as usual let's same as last two examples okay add twenty

percent on invoice price here they have said twenty percent on invoice price

okay let's see so how are we going to find the invoice price same formula same

formula in word press is equal to cost plus profit right cost plus profit now

we have got the cost here for like twenty thousand isn't it

so we write that fall in twenty thousand ten profit we need profit now we can't

calculate twenty percent on for like twenty thousand why that's because this

is twenty percent not on cost it is on invoice price see in the previous

examples it was cost plus twenty percent so it was twenty percent on cost but in

the third example it is based on in once price the loading percentage of the

profit percentage is based on invoice price we don't have an OS price we have

only cost price so we can't calculate twenty percent on for like twenty

thousand we can't do that so what we can do is we can convert this

percentage yeah we can convert this percentage from invoice price to cost

price okay so how are we going to do that

see I will show you before conversion I will tell you two important things okay

see the cost is right the cost will be always it will be always less than C

will be always less than okay will be always less than the invoice price

always remember that because cost is cost but invoice price is including cost

and profit in wise price means cost plus profit so invoice price will always be

higher than cost price okay tip number two the cost I take it like cost is

minus invoice prices as plus why because

because to arrive at invoice price we add profit to arrive at cost price we

deduct the profit okay now let's see the conversion I will show you what I mean

by this alright see now we have here twenty

percent on invoice price right so we have twenty percent we have twenty

percent on invoice price and we need to convert this into cost how are we going

to do that see what I told you to arrive at cost we need to deduct the profit so

what are we going to do is 20 divided by it is supposed to come hundred right 20

percent means twenty five hundred but we are going to take 20 by eighty we are

going to deduct that 20 percent all right 20 by eighty and percentage that

is hundred so let's calculate that 20/80 in 200 that is 25 percent see so now we

got the percentage in cost 25 percent okay

simple right how we did the conversion in wise price 20 percent they gave us

right so what we did we to 20/80 why 80 we detected the profit percentage in 200

if it was 30 over here then you would have taken 70 all right

so 20 by 80 in 200 then you got 25 percent all right then we are going to

easily calculate there is no problem here right then for like twenty thousand

for like 20 thousand into 25 percent that person we just found out right 25

percent on cost because we have to match the loading percentage and the amount

percentage amount okay if here it is cause he rose it has to be cost

otherwise we have to do the conversion okay so we got how much we got one leg

five thousand right one leg five thousand one leg five thousand would be

the loading all right the profit so we will add that

how much it is fine left 25,000 right 4 plus 1 5 20 plus 5 25 5

like 25,000 easy right you got right see here it was given at cost price that

could costing for like 20,000 so this was cost but here it was the profit

percentage was on invoice price the loading percentage was on invoice price

so we had to convert this percentage to match up with the good central branch so

that we can easily calculate the invoice price all right easy right okay

now the thing is when you see the branch problem in your examination paper first

you need to look for two things first the loading and the second thing is good

center branch this will be either in the top of the question or at the bottom of

the question and good center branch will be mainly in the content of the problem

okay so you need to see whether the loading percentage is on cost or on

invoice price okay how to identify that see here in our first example we saw

cost plus 20% this is the loading percentage are the know D percentage

here it is based on cost because it is said cause plus 20%

yeah common sense then here percentage on invoice price now how we are going to

know it is based on invoice price see 20% on invoice price it will be clearly

given to you if it is given 20 percent on sales price that means it is on

invoice price so you have to see whether the load loading is given on cost or on

invoice price the percentage all right next you have to see goods sent to

branch so you have to see good set to branch whether it is given in cost or at

invoice price okay see in all these three examples it was on cost costing

for like twenty thousand costing to lag then here it was costing one like fifty

thousand you see on cost so the thing is you have to see whether they match the

percentage on cost and the amount in cost if both are on cost then it is no

problem which can easily calculate it easily calculate the invoice price as we

did in the example two and example one both were on cost so we directly

calculate a 30 percent on the good center branch and we got the profit the

load and we found in once price same as V

Dorinda a example first first example see costing cost plus 20 percent both on

cost so no need of conversion directly to 20 percent on 20% off 2 lakh and we

found through lag and forty thousand we added and I found the invoice price

right so the conversion arises only when there is a difference between the

loading percentage and the goods center branch amount all right you got that

right and I told you how to convert that was here C is always less than IP the

first tip alright and the second tip is C's - and IP is

plus because IP to arrive at IP we add the profit and to arrive at cost we

deduct the profit so to convert what we did 25 person on cause if it is 25

percent on cause then we will add the profit all right

25 divided by 100 right but we will take 125 because we will add the profit

percentage okay so 25 divided by 125 in 200 hundred

means the percentage so 25 divided by 125 in 200 see here's the calculator 25

divided by 125 yeah in 200 it is equal to 20 see we got 20 percent right we got

20 percent so 20 percent on in was fine this is how we convert the percentages

of loading all right and this arises only when we don't only when the

percentage and the amount doesn't match up all right if it matches then no

problem okay you got the idea right now let's see the accounting treatment

required when the problem is based on invoice price okay now let's see the

accounting treatment that is required when goods are centered on in was price

see when the goods are set are in invoice price the main focus will be on

these four items the opening stock closing stock good center branch goods

returned by branch all right and these four items will always appear at invoice

price when the problem is based on invoice price all these four items will

be valued at invoice price and given in the invoice price in the question okay

so opening stock opening stock is always debited right normally it is always

usually okay all this debited stock is always debited

the opening stock I mean and the closing stock is always credited okay that's

clear so what happens is when they appear it involves price they get

inflated all right they get inflated they have an element of profit in them

so we have to remove that element of profit otherwise otherwise if we don't

remove that profit what happens is that a bid side get inflated so if the debit

side increases in the branch account then we will arrive at wrong profit we

will arrive at wrong profit okay our expenditure increases right this is

nominal account if the expenditure increases our profit decreases and the

profit will not be true prophet all right so we have to remove that profit

so how are we going to do that we do that by making an equal credit as buy

stock reserve suppose here there is a thousand let's take an example here

there is thousand okay and in that thousand there is one hundred profit

hundred margin of profit is there in that thousand so what are we going to do

stop thousand and gave given in the question we will take thousand and on

the credits and we'll take buy stock Reserve one hundred because we need to

remove that debit so to remove that debit of hundred from the thousand we

have to make an equal credit of one hundred all right you got that right

okay next let's move on see next is clothing store clothing store also same

thing or a clothing store is always credited here so let's say here 2000 is

the clothing store given in the question you took this dog here 2000 and let's

say 200 in that 2000s profit okay in wise price it is valued at in vice

president let's say there is 200 profit so that 200 you have to you have to

remove it how are you going to remove that to remove that you have to make an

equal debit to stop reserve you will take here 200 okay to remove that credit

to remove that credit you have to make an equal debit all right that's clear

closing stock and opening stock how you will remove the loading okay then let's

let's move on see now here Goods said to branch is their goods center branch is

always debited because it is an expense for the head office to send the goods to

the branch right so it is always them now it'll come over here to GST be right

let's say he said two lakh worth of goods okay - lat

what of goods so to light will come home here okay it is the invoice price okay -

like his invoice price and in that invoice price let's say twenty thousand

is profit so what are we going to do is we will take as usual - GST v2 good

center branch - lat and on the credit side you have to

remove that loading on the credit side we will make same entry by GST be okay

by GST we buy goods center branch to remove the loading and we will take here

only profit not the whole amount only profit as we did in the stocks so we

will take twenty thousand all right so this is over you understood right to

remove the loading we have to make an equal debit or credit as it is alright

then hereby GST B see next is goods returned by branch goods returned by

branch whenever the branch cannot sell the goods in the market

alright what it does is it sends those Goods back to the add office

so whenever those goods are being sent back to the head office what happens is

they include invoice price all right so because they were centered an invoice

price so they are coming back also at an invoice price it's obvious right so

let's say thousand worth of goods are coming back at an invoice price and in

that thousand one hundred is profit so same you have to do you have to do make

an additional entry over here to GST be to remove that loading one hundred all

right yeah there will be thousand as given in the question this will be given

in the question to India by GST be sorry the readers will be given at the

question they will say returned by a branch so you have to credit that as by

GST B as we did in the last problem of the color of the branch so you have to

credit it and then you have to take it you have to make a double entry on the

debit side alright easy right so this is how you remove the loading and this is

the accounting treatment that is required when the problem is based on

invoice price alright and the same concept applies in consignment

accounting okay if the consume and accounting is in your syllabus then the

same concept applies in the consignment okay and in consignment only the name

changes here it is branch there is consignment all right so if it is in

your syllabus please concentrate on this video all right okay