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Financial Accounting Paper 2, Nov/Dec 2008  
Questions: 1 2 3 4 5 6 7 8 9 Main
General Comments

Question 1

  • List and explain the three methods of transferring goods from head office to branch
  • State an instance in which each of the methods listed in (a) above is used.


Few candidates attempted this question and performed badly.
The expected answers are:

   (a)  Method of transferring goods from head office to branch are     

  • Cost Price:  With this method the head office charges  the goods out to the branches at cost price.
  • Selling Price:   With this method, the head office fixed the price at which the goods are to be sold and charges it to the branches.
  • Cost Price plus Percentage: With this method, the goods are charged to the branches by the head office at cost plus a fixed percentage

(b)(i)   Cost Price method is used when:

  • goods do not have stable selling price
  • the goods are perishable
  • there is difficulty in determining the selling price
  • branches are free to determine selling price

(ii) Cost Plus Percentage method is used when there  is a need:

  • to provide a check on stock and cash at the branch
  • to disclose the gross profit or loss.

 (ii)  Selling Price method is used:

  • to provide an effective check on the  stock issued to the
  • When goods are sold at specific prices
  • When goods sent to branch attract different gross profit
  • When the selling price is imposed on the branch by head

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