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UI Post-UTME Financial Accounting 2025 (Model questions) Question 16

Question 16

Branch Accounts

A branch was invoiced goods by the head office at cost plus 25%. At year-end, branch stock was ₦50,000 at invoice price. Which of the following are correct when eliminating unrealised profit?
I. Unrealised profit = ₦10,000
II. Stock reserve is debited in the head office books
III. Branch stock is reduced to ₦40,000 in consolidated accounts
IV. A stock reserve account is a liability

  1. A.I and III only
  2. B.II and IV only
  3. C.I, II and III only
  4. D.All of the above
Show the answer and explanation

Answer: A (I and III only)

Explanation

Profit = 25/125 = ⅕ of invoice price, so ₦10,000 and stock at cost ₦40,000. The stock reserve is credited, and it reduces the asset rather than being a liability.