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
branches
- When goods are sold at specific prices
- When goods sent to branch attract different gross profit
percentages.
- When the selling price is imposed on the branch by head
office.
