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In the books of HO, goods sent to branch at invoice price (cost + loading) requires:
ANo special adjustment
BCash receipt entry
CStock reserve to be created to eliminate unrealised profit in closing branch stock
DInter-branch transfer entry
Answer & Solution
Correct answer: C. Stock reserve to be created to eliminate unrealised profit in closing branch stock
1. Step 1: When goods are invoiced at a price above cost, closing branch stock contains unrealised profit (loading).
2. Step 2: A "Stock Reserve" is created in HO books to eliminate this for consolidated reporting.
3. Step 3: Hence (B).
_Source: ICAI BoS CA Inter Paper 1, Ch 15 "Accounting for Branches including Foreign Branches"_