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

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.

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Observation

Few candidates attempted this question and performed badly.

(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.