Accounting for Branch

Classificaiton of Branches

Classificaiton of Branches

In case of (A)(I)(a)(i):

Accounting Entries in the books of Head Office (H.O.):

No.

Particulars

Debit

Credit

1.

For Cost Price of Goods sent to Branch:

Branch Stock A/c                                            Dr

       To Goods Sent to Branch A/c

XXX

 

 

XXX

2.

For Cost Price of Goods returned by Branch:

Goods Sent to Branch A/c                               Dr

       To Branch Stock A/c

XXX

 

 

XXX

3.

For remittance to Branch for expenses:

Branch Cash A/c                                             Dr

       To Bank A/c

XXX

 

 

XXX

4.

For cash sales at Branch:

Bank A/c [(or) branch cash, if money is not immediately remitted]                                      Dr

       To Branch Stock A/c

 

XXX

 

 

 

XXX

5.

For credit sales at Branch:

Branch Debtors A/c                                         Dr

       To  Branch Stock A/c

XXX

 

 

XXX

6.

For Goods returned to Branch by customers:

Branch Stock A/c                                            Dr

      To  Branch Debtors A/c

XXX

 

 

XXX

7.

For Cash collected from Branch Debtors:

 Bank A/c [(or) branch cash, if money is not immediately remitted]                                      Dr

       To Branch Debtors A/c

 

XXX

 

 

 

XXX

8.

For Discount & Allowances to Debtors & Bad Debts:

 Branch Profit & Loss A/c                                Dr

       To Branch Debtors A/c

 

XXX

 

 

 

XXX

9.

For remittances to Head Office: 

Bank A/c                                                         Dr

       To Branch Cash A/c

XXX

 

 

XXX

10.

For Branch expenses:

Branch Expenses A/c                                      Dr

       To Bank A/c

       (or branch cash, if met by branch)

 

XXX

 

 

XXX

11.

For Purchase of any Fixed Asset at Branch:

Branch Asset A/c                                             Dr

       To Bank A/c

       (or branch cash, if paid for by the branch)

 

XXX

 

 

XXX

12.

For Depreciation on Branch Assets:

 Branch Profit & Loss A/c                                Dr

       To Branch Assets A/c

 

XXX

 

 

XXX

13.

For abnormal Loss and Goods:

Branch Profit & Loss A/c  (or)                          Dr

Insurance Claim A/c      (if covered Insurance) Dr

       To Branch Stock A/c

 

XXX

XXX

 

 

 

XXX

 

 

Ledger Accounts and their details:

< >Branch Stock A/c: Value of opening stock is shown as opening balance on the debit side of Branch Stock A/c. Similarly, value of closing stock is shown as closing balance on the credit side of Branch Stock A/c. The balance of Branch Stock A/c will now represent Gross Profit/Loss at the branch to be transferred to Branch Profit and Loss A/c.   Branch Expenses A/c: The balance of Branch Expenses A/c will also be transferred to Branch Profit & Loss A/c.Branch Debtors A/c: The balance of this Account represents the closing Debtors.  Goods sent to Branch A/c: The balance of this account should be t/s to Purchase A/c.Branch Profit & Loss A/c: The balance of Branch Profit and Loss A/c will represent Net Profit/Loss at the branch to be transferred to General Profit and Loss A/c.Note:  Normal Loss need not be recorded separately.

 

 

In case of (A)(I)(a)(ii):

Under this method it is assumed that the branch has a separate entity apart from the head office and, on this basis, a branch account is opened separately for each branch in the books of head office.  This account is debited with the value of benefits and cash given to the branch and correspondingly credited with the value of benefits and cash received from the branch.

Branch A/c

Particulars

Rs.

Particulars

Rs.

To Balance b/d

Branch Stock                   XXX

Branch Debtors               XXX

Branch Petty Cash           XXX

To Goods sent to branch

To Bank

     (Amount remitted to branch)

To Bank

     (Branch Exp.’s paid by H.O.)

To General P & L A/c

 

 

 

XXX

XXX

XXX

 

XXX

 

XXX

By Bank

     (Amount remitted by Branch)

By Goods sent to Branch

     (Return to H.O)   

By Balance c/d:

Branch Stock                 XXX

Branch Debtors              XXX

Branch Petty Cash         XXX

XXX

 

XXX

 

 

 

 

 

XXX

XXX

XXX

 

In case of (A)(I)(b&c)(i):

Accounting Entries in the books of Head Office: Under this system, in addition to the accounting entries passed in case of invoicing goods at cost price, the following entries are passed:

No.

Particulars

Amount Rs.

1.

For Goods sent to Branch:

a.  Branch Stock A/c                                        Dr

To Goods Sent to Branch A/c

 

Invoice price

 

Load on goods sent

b.  Goods Sent to Branch A/c                           Dr

To Branch Stock Adjustment A/c

2.

For Goods returned by Branch to H.O.:

a.  Goods Sent to Branch A/c                           Dr

To Branch Stock A/c

 

Invoice price

 

Load on goods returned

b.   Branch Stock Adjustment A/c                    Dr

To Goods Sent to Branch A/c

 

Ledger Accounts and their details:

a.Branch Stock A/c:  There will be an opening balance in this account representing opening stock at branch at selling price and a closing balance representing closing stock at branch at selling price.  After all the relevant entries have been passed to this account as already detailed, both sides of this account should agree. Any difference represents surplus or deficiency of stock and will be transferred to a stock discrepancy account.  The stock discrepancy account will be closed by transferring the load to branch stock adjustment account and the balance to branch profit & loss A/c.

b.Branch Stock Adjustment A/c: This account will be created with the Stock Reserve A/c for the loading included in the opening branch stock (at selling price).  Similarly, this account is debited with the Stock Reserve A/c for loading included in the closing branch stock.  The difference remaining in this account (after all the relevant entries have been passed) represents gross profit/loss at branch and will be transferred to branch Profit & Loss A/c.

c.Loss of Goods:  This will be treated in the following manner:

Normal Loss: Since branch stock adjustment account discloses gross profit, normal loss should be charged to this account by the following entry:

1.

Branch Stock Adj. A/c                                     Dr

        To Branch Stock A/c

Selling Price

 

Abnormal Loss: The following entries will be passed for recording abnormal loss:

1.

Abnormal Loss A/c                                          Dr

        To Branch Stock A/c

Selling Price

2.

Branch Stock Adj. A/c                                     Dr

        To Abnormal Loss A/c

Load on goods lost

3.

Branch Profit & Loss A/c                                 Dr

        To Abnormal Loss A/c

Cost price of goods lost

 

If the goods are insured, insurance claim account will be debited instead of branch Profit & Loss A/c to the extent of claim admitted and the balance will be debited to branch profit & loss A/c.

 

In case of (A)(I)(b&c)(ii):

Accounting Entries in the books of Head Office:

The branch account will be prepared on the same line as discussed earlier, but as goods are supplied to the branch at loaded price. (1) Opening stock, (2) goods sent to branch, (3) goods returned by branch and (4) closing stock will be recorded in the branch account at this price.  Hence, in order to ascertain the true profit or loss at branch it will be necessary to eliminate the loads and bring down these items to cost level.

For this purpose the following adjusting entries will be made:

1.

For load on Goods sent to Branch:

Goods Sent to Branch A/c                               Dr

        To Branch A/c

 

XXX

 

 

XXX

2.

For load on Goods returned by Branch to H.O.:

Branch A/c                                                      Dr

        To Goods Sent to Branch A/c

 

XXX

 

 

XXX

3.

For load included in the Opening Stock:

Stock Reserve A/c                                            Dr

        To Branch A/c

 

XXX

 

 

XXX

4.

For load included in the Closing Stock:

Branch A/c                                                      Dr

        To Stock Reserve A/c

 

XXX

 

 

XXX

The balance of stock reserve account at the end of each year will be carried forward to the next year for being transferred to the branch account of that year as shown in item (3) above.

 

Distinction between Wholesale Profit & Retail profit at Branch:

In order to know whether self-retailing through branches is more profitable than wholesaling, it is necessary to make a distinction between wholesale profit and retail profit. The true profit of a branch can, therefore, be determined by charging it with the wholesale price of goods sent and crediting the head office trading account with the same amount.  Since closing stock of branch, in such a case, will be valued at wholesale price it will be necessary to create a provision for unrealised profit on stock by debiting the head office Profit & Loss A/c.

For E.g.: Let the cost of an Article be Rs.100, wholesale price be Rs.140 and retail price be Rs.150.  If it is market rate is through a detail branch, the profit earned there will be Rs.50.  But the true profit of the branch is, however, Rs.10 only, because Rs.40 could have been earned even without having the branch i.e. by selling it on wholesale basis to others.

 

In case of (A)(II) (Independent Branches):

Part: I – Special Adjustments:

1.Regarding Goods-in-transit & Remittance-in-transit:

1.

If adjustment is made in the books of H.O.:

Goods-in-transit A/c                                        Dr

Cash-in-transit A/c                                          Dr

          To  Branch A/c

 

XXX

XXX

 

 

 

XXX

2.

If adjustment is made in the books of branch:

Goods-is-transit A/c                                        Dr

Cash-in-transit A/c                                          Dr

          To Head Office a/c

 

XXX

XXX

 

 

 

XXX

 

In the balance sheet, goods-in-transit or cash-in-transit will be shown as assets. At the commencement of the next financial year, these entries will be reversed and Transit A/c will be closed.

2.Regarding Depreciation on Fixed Assets: Often, the accounts of fixed assets of a branch are maintained in the head office books.  In such a case,

1.

Entry for depreciation in H.O. Books:

Branch A/c                                                      Dr

     To Branch Fixed Assets A/c

XXX

 

 

XXX

2.

The branch passes the following entry in its own books for Depreciation:

Depreciation A/c                                              Dr

     To Head Office A/c

 

XXX

 

 

 

XXX

 

Any purchase of fixed assets by the branch, in such a case, should be debited to head office account and credited to bank (or Supplier’s A/c) in the branch books.  Similarly, in head office books the same should be debited to branch fixed assets account and credited to Branch A/c.

< >Regarding Inter-Branch Transactions: Where there are number of branches, inter-branch transactions are likely to take place, e.g., cash or goods sent by one branch to another or expenses incurred by one branch on behalf of another.  Such transactions are usually adjusted assuming that they were entered into under the instructions from the H.O.  Suppose Kolkatta branch transfers some goods to Mumbai branch under the directions of the H.O.  The entries will be as follows:

1. In the books of Kolkatta Branch:

Head Office A/c                                                Dr

        To Goods Supplied to Branch A/c

2. In the books of Mumbai Branch:

Goods received from Branches A/c                   Dr

        To Head Office A/c

3. In the books of Head Office:

Mumbai Branch A/c                                        Dr

        To Kolkatta Branch a/c

 

Note:  Inter-branch transactions without the knowledge of head office may be passed as between the branches only in the usual manner.

4.Regarding Charges made by H.O.: The head office may make a charge to the branch for services rendered by it, or for a portion of head office overheads applicable to branch management on the principle that the branch should be debited with all relevant expenses and charges applicable to it.

1.

In head office books the entry will be:

Branch A/c                                                      Dr

        To The Relevant Expenses A/c

XXX

 

 

XXX

2.

In Branch books the entry will be:

The Relevant Expenses A/c                              Dr

        To Head Office A/c

XXX

 

 

XXX

 

5.Remittances A/c: Sometimes the branch remits cash to the head office quite frequently.  In such a case, the head office finds it convenient to open a branch remittances account.  The periodical total of this account will be transferred to the credit of branch account.  If the branch so desires, it can also open a remittances to head office account the periodical total of which will be transferred to the debit of head office account.  Similar treatment can be made for goods sent to branch also.

 

Part II – Closing of Branch Books:

 
  Closing of Branch

 

 

 

 

 

 

 

 

 

 

 

 

Explanation: At the end of each financial year the branch prepares a trial balance and proceeds to close its books of accounts. The subject of closing the books consists of two activities: (a) Closing of Revenue accounts; (b) Closing of Asset & Liability accounts.

Closing of Revenue Accounts: Two different methods may be applied for closing the revenue accounts.

First method:  Under this method the branch simply transfers the individual balance of various revenue accounts to the H.O. A/c, thereby closing the revenue accounts.  The entries will be as follows:

1.

For debit balances of revenue items:

Head Office A/c                                                Dr

       To Sundry Revenue A/c

XXX

 

 

XXX

2.

For credit balances of revenue items:

Sundry Revenue A/c                                        Dr

       To Head Office A/c

XXX

 

 

XXX

 

Second method: Under this method, the branch prepares its own Trading and Profit & Loss A/c and transfers only the Net Profit or Loss (instead of all the revenue balances) to the H.O. A/c in the same way as Profit or Loss is transferred to Capital A/c in an ordinary business.  The revenue accounts are thus closed, and the Profit or Loss transferred to the H.O. A/c.

Closing of Asset & Liability Accounts: The balances of Assets & Liabilities may or may not be transferred to the H.O. books.  If it is decided to transfer them, the under mentioned entries will be passed to close the accounts in the branch books:

1.

For Assets:

Head Office A/c                                                Dr

      To Sundry Asset A/c

XXX

 

 

XXX

2.

For Liabilities:

Sundry Liability A/c                                         Dr

      To Head Office A/c

XXX

 

 

XXX

 

After such transfer, the H.O. A/c in branch books will have no balance.

Note:

< >At the commencement of the next accounting period it is necessary to restore the balance of Assets & Liabilities in the branch books by passing a reverse entry. If, however, these are not transferred, there will remain a balance in H.O. A/c equal to the net assets (i.e. assets less liabilities).  Thus, in this case, the branch may prepare a Balance Sheet

.

 

Part III – Incorporation of Branch Trial Balance in H.O. Books:

Incorporation of books in HO

 

Explanation: The branch sends its trial balance (together with its trading and P & L A/c and Balance Sheet, if these are prepared by the branch) to the H.O. for incorporation in H.O. books.  When the H.O. receives the branch Trial Balance, it proceeds to incorporate the same in its books. The incorporation procedure may be broken up into two parts: (a) Incorporation of revenue accounts of branch and (b) Incorporation of assets and liabilities of branch.

Incorporation of Revenue Accounts:  This can be done in two different methods:

First method: Under this method, a Trading and Profit & Loss A/c of the branch is prepared by H.O.  The entries to be passed are as follows:

1.

For items which will appear on the debit side of Trading A/c:

Branch Trading A/c                                         Dr

      To Branch A/c

 

XXX

 

 

 

XXX

2.

For items which will appear on the credit side of Trading A/c:

Branch A/c                                                      Dr

      To Branch Trading A/c

 

 

XXX

 

 

 

 

XXX

3.

For Gross profit made by branch:

Branch Trading A/c                                         Dr

      To Branch P & L A/c

XXX

 

 

XXX

4.

For items which will appear on the debit side of P & L A/c:

Branch P & L A/c                                             Dr

       To Branch A/c

 

XXX

 

 

 

XXX

5.

For items which will appear on the credit side of Trading A/c:

Branch A/c                                                      Dr

       To Branch P & L A/c

 

 

XXX

 

 

 

 

XXX

6.

For Net Profit made by the branch:

Branch P & L A/c                                             Dr

       To General P & L A/c

XXX

 

 

XXX

 

Second method: Under this method, Branch Trading and Profit & Loss A/c is prepared in H.O. books which is merely a Memorandum A/c, and therefore, the entries made in this account do not have any double entry effect. The only object of this Memorandum A/c is to ascertain the net profit/loss of the branch. This net profit/loss is incorporated (and not the individual balances as in the first method) in the head office books by the following entry:

1.

In case of Net Profit:

Branch A/c                                                      Dr

     To General Profit & Loss A/c

XXX

 

 

XXX

2.

In case of Net Loss:

General Profit & Loss A/c                                 Dr

       To Branch A/c

 

XXX

 

 

 

XXX

Incorporation of Assets & Liabilities:  The head office may or may not be incorporate the Assets & Liabilities of the branch. If incorporated the following entries shall be necessary:

1.

For Branch Assets:

Sundry Branch Asset A/c                                Dr

       To Branch A/c

XXX

 

 

XXX

2.

For Branch Liabilities:

Branch A/c                                                     Dr

       To Sundry Branch Liability  A/c

XXX

 

 

XXX

 

After such incorporation of Assets & Liabilities, the Branch A/c (in which adjustment entries have already been posted) in H.O. books will be closed.

 

Note:

< >At the commencement of the next accounting period, the entries passed for incorporation of Assets & Liabilities will be reversed, and then the Branch A/c will again be restored showing the opening balances of these items. If the Branch Assets & Liabilities are not incorporated, the Branch A/c in H.O. books will have closing balance equal to net assets of the branch.While preparing a Balance Sheet of the H.O. all the Assets & Liabilities of the H.O. and those of the branch will be taken into consideration.FOREIGN BRANCHES

 

 

Introduction: A Foreign branch usually maintains a complete set of books under double entry principles. So, the accounting principles of a Foreign Branch will be the same as those applying to an Inland Branch. Before a Trial Balance of the Foreign Branch is incorporated in the H.O. books, it has to be converted into home currency.

Rules for conversion: In case of fluctuating rates of exchange, the following rules for conversion are applied:

No

Nature of Account

Exchange Rate Applicable

1.

2.

3.

4.

5.

 

6.

7.

 

 

8.

 

9.

Fixed Assets

Fixed Liabilities

Current Assets & Liabilities

Remittances sent by the branch

Goods received from H.O. as well as goods returned to H.O.

The Nominal A/c’s (except next two)

Depreciation on Fixed Assets

 

 

Opening and Closing stocks

 

Balance in H.O. A/c

Rates ruling at the time they were acquired.

Rates ruling as on the date of the Trial Balance.

Rates ruling as on the date of the Trial Balance.

At the actual rates at which they were made.

At the rates ruling on the date of dispatch or the date of receipt.

Average rate ruling during the accounting period.

Rate of conversion applicable in case of the particular asset concerned [as indicated in (a) above].

Rates ruling of on the opening and closing dates respectively.

Value at which the Branch A/c appears in H.O. books on the date.

Difference in Exchange: As a result of conversion of branch trial balance in home currency, a difference in the trial balance is will often arise. If a loss (Dr.) results, it should be debited to Profit & Loss A/c, if a profit (Cr.) results, the prudent course is to credit it to an exchange Reserve A/c so as to provide for future losses on exchange.

 

 

Problems

 

Problem 1: The Empire Stores Ltd. invoice goods to their various branches at cost and the branches sell on credit as well as for cash. Form the following details relating to the Mumbai branch, prepare the necessary accounts in the head office books:

Particulars

Amount

Particulars

Amount

Debtors, 1st January, 2001

Debtors, 31st December, 2001

Cash Balance, 1st January, 2001

Stock, 1st January, 2001

Stock, 31st December, 2001

Goods received from head office

Cash received from head office

Goods returned to head office

Cash sales

Credit sales

26,200

33,100

300

15,000

13,900

50,800

1,500

700

33,500

60,000

Allowances to customers

Returns from customers

Discount allowed to customers

Bad debts

Remittance to head office

Rent and rates

Wages and salaries

General trade charges

Normal loss of goods due to wastage

Abnormal loss of goods due to pilferage

320

580

2,400

600

74,900

1,800

6,000

1,300

1,200

3,000

Problem 2: During the year ended 31st December, 2001 X & Co. of Chennai sent to their branch at Mumbai goods costing Rs.1,00,000. They used to invoice to the branch at a price designed to show a gross profit of 33.33% on invoice price. Collections at the branch from debtors amounting to Rs.26,390 were all sent to head office. Branch transactions during the year were:

Particulars

Amount

Cash sales

Credit sales

Goods returned by customers

Goods returned to H.O. (Invoice Price)

1,21,050

27,600

300

780

 

 

Particulars

31.12.00

31.12.01

Stock (at invoice price)

Sundry debtors

      2,250

      1,320

      2,700

      2,230

 

Goods at the branch of Rs.1,260 (invoice price) were lost. Insurance company paid Rs.730 on the claim. Branch expenses, paid by head office, amount to Rs.36,780. Show the necessary Ledger Accounts as would appear in the head office books recording the above transactions relating to the branch including branch Profit & Loss A/c.

 

Problem 3: T of Calcutta has a branch at Dibrugarh. The branch does not maintain separate books of accounts. The branch has the following assets & liabilities on 31st August, 2003 and 30th September, 2003:

Particulars

31st August

2003

30th September

2003

Stock of tea

Advance to suppliers

Bank balance

Prepaid expenses

Outstanding expenses

Creditors for purchases

1,80,000

5,00,000

75,000

10,000

13,000

3,00,000 

          1,50,000

          4,50,000

          1,00,000

            12,000

            11,000

To be ascertained.

 

During the month, Dibrugarh branch:

a.Received by electronic mail transfer Rs.10,00,000 from Calcutta head office;

b.Purchased tea worth Rs.12,00,000;

c.Sent tea costing Rs.12,30,000 to Calcutta, freight of Rs.80,000 being payable at the      destination by the receiver;

d.Spent Rs.25,000 on office expenses;

e.Paid Rs.3,00,000 as advance to suppliers;

f.Paid Rs.6,50,000 to suppliers in settlement of outstanding dues.

In addition, T informs you that the Calcutta office had directly paid Rs.3,50,000 to discharge suppliers by cheques drawn on bank accounts in Calcutta during month.

T informs you that for the purpose of accounting, Dibrugarh branch is not treated as an outsider. He wants you to write the detailed accounts relating to the transactions of the Dibrugarh branch as would appear in the books of Calcutta head office.

 

Problem 4: Premier Company has two branch shops at Shyam bazar and at Tollygunge each with a separate manager. The ratio of gross profit to selling price is constant at each shop at 25% throughout the year to 31st March, 2002.

Each branch manager is entitled to a commission of 10% of the net profit earned by his branch, calculated before charging his commission, but subject to a deduction from such commission equal to 25% of any ascertained deficiency of the branch stock. All goods were supplied by the head office to branches. From below information, calculate the commission due to each manager for 2001-2002:

Particulars

Shyambazar

Tollygunge

Stock at 1.4.01 at cost

Goods to branches at cost

Sales

Drawing of commission on account by managers

Chargeable expenses

Stock at 31.3.02 at selling price

18,684

72,420

90,320

600

12,280

30,832

12,484

43,480

58,560

400

9,020

15,952

 

 

Problem 5: Bengal Trading Co., with its head office in Kolkata, invoiced goods to its branch at Mumbai, at 20% less than the catalogue price which is cost plus 50%, with instructions that cash sales were to be made at invoice price and credit sales at catalogue price less discount at 15% on prompt payment. From the following particulars available from the branch, prepare the necessary Accounts and Branch Trading and Profit & Loss A/c for the year ended 31st March, 2002 in the head office books so as to show the actual profit or loss of the branch for the year:

Particulars

Amount

Stock on 1st April, 2001 (invoice price)

Debtors on 1st April, 2001

Goods received from head office (invoice price)

Sales (cash)

Sales (credit)

Cash realised from debtors

Discount allowed to debtors

Expenses at the branch

Remittance to head office

Debtors on 31st March, 2002

Cash in hand on 31st March, 2002

Stock on 31st March, 2002 (invoice price)

12,000

10,000

1,32,000

46,000

1,00,000

85,635

13,365

6,000

1,20,000

11,000

5,635

15,000

 

Provision should be made for discount to be allowed to debtors as on 31st March, 2002, on the basis of the year’s trend of prompt payment.

 

Problem 6: Buckingham Bros, Bombay have a branch at Nagpur. They sold goods at cost to their branch at Nagpur. However, direct purchases are also made by the Branch for which payments are made at head office. All the daily collections are transferred from the Branch to the head office. From the following prepare Nagpur branch account in the books of head office:

Particulars

Amount

Particulars

Amount

Opening Balance on 1.1.90:

Imprest cash

Sundry debtors

Stock: Transferred from H.O.

           Direct Purchases

Cash sales

Credit sales

Direct purchases

Returns from customers

Goods sent to branch from H.O.

Transfer from H.O. for petty exp.

 

2,000

25,000

24,000

16,000

45,000

1,30,000

45,000

3,000

60,000

4,000

Bad debts

Discount to customers

Remittances to H.O.

(received by H.O.)

Remittances to H.O.

(not received by H.O. so far)

Branch exp. directly paid by H.O.

Closing Balance (31-12-90):

Stock: Direct purchases

            Transfer from H.O.

Debtors

Imprest cash

1,000

2,000

 

1,65,000

 

5,000

30,000

 

10,000

15,000

?

?

 

Also find out the profit by preparing the Profit & Loss A/c (Branch).

 

Problem 7: Arnold Ltd. Delhi trades in Ghee and oil. It has a branch at Lucknow. The company despatches 25 tins of oil @ Rs.1,000 per tin and 15 tins of Ghee @ Rs.1,500 per tin on 1st of every month. The Branch incurs some expenditure which is met out of its collections this is in addition to expenditure directly paid by H.O. Following are the other details:

Particulars

Delhi

Lucknow

Purchases:

Ghee

Oil

Direct exp. paid by H.O.

Sales:

Ghee

Oil

Collection during the year

(including cash sales)

Remittance by branch to H.O.

 

14,75,000

29,32,000

3,83,275

 

18,46,350

27,41,250

 

---

---

 

---

---

14,250

 

3,42,750

3,15,730

 

6,47,330

6,13,250

 

 

Particulars

Delhi

Lucknow

1.1.03

31.12.03

1.1.03

31.12.03

Stock:

Ghee

Oil

Debtors

Cash on hand

Furniture & Fittings

Plant & Machinery

 

1,50,000

3,50,000

7,32,750

70,520

21,500

3,07,250

 

3,12,500

4,17,250

---

55,250

19,350

7,73,500

 

17,000

27,000

75,750

7,540

6,250

---

 

13,250

44,750

?

12,350

5,625

---

 

< >Additions to Plant & Machinery on 1.1.03 Rs.6,02,750.

Rate of Depreciation: Furniture & Fittings @ 10%, Plant & Machinery @ 15% (already adjusted in the above figures).

The Branch Manager is entitled to 10% commission after charging such commission whereas, the General Manager is entitled to 10% commission on overall company profits after charging such commission. General Manager is also entitled to a salary of Rs.2,000 p.m. General expenses incurred by H.O. Rs.24,000.

Prepare Branch A/c in the H.O. books and also prepare the company's Trading and P&L A/c (excluding branch transactions).

Problem 8: Bipani Ltd. of Mumbai has a branch at Nasik. The branch does not maintain accounting books and all the collections of the branch are remitted to head office. The head office reimburses the expenses of the branch. Goods are invoiced to the branch at selling price which is cost plus 25% and the branch is not entitled to vary this price. From the following information prepare Branch Accounts in the books of head office:

Particulars

Opening

Rs.

Closing

Rs.

Balances at branch:

Stock

Debtors

Cash

 

5,000

3,200

400

 

?

?

400

 

Transactions during the year:

Particulars

Rs.

Goods sent to branch

Goods returned to head office

Credit sales at branch

Cash sales at branch

Cash received from customers at branch

Bills receivable accepted by customers at branch

Cash sent to branch for expenses

Shortage in stock at branch

Discount allowed to branch customers

40,000

2,000

32,000

8,000

28,000

2,000

4,800

500

320

 

Problem 9: The Head Office sends goods to Branch @ 20% profit on cost, freight and duties amounting to 10% on invoice value being paid by branch. Branch sells at 20% G.P. on selling prices. The stock taking date is 31-12-2002, but stock was taken on 10-1-2003. The price for stock was agreed to be the cost to head office to be increased by actual expenses incurred by the Branch less Rs.6,000. Stock on 10-1-2003 (at Branch cost) amounted to Rs.64,600. Rs.6,000 stock (invoice value) was received from H.O. after 31-12-2002 but before 10-1-2003. Sales in this period amounted to Rs.10,000.

Ascertain the selling price of stock as on 3-12-2002.

 

Problem 10: The Head Office passes adjustment entry at the end of each month to adjust the position arising out inter-branch transactions during the month. From the following Inter-branch transaction in January 2003, make the entry in the books of H.O.:

A.Mumbai Branch:

a.Received Goods Rs.6,000 from Kolkatta Branch, Rs.4,000 from Patna Branch.

b.Sent Goods of Rs.10,000 to Patna, Rs.8,000 to Kolkatta.

c.Received B/R Rs.6,000 from Patna.

d.Sent Acceptance Rs.4,000 to Kolkatta, Rs.2,000 to Patna.

B.Chennai Branch (apart from the above):

a.Received Goods Rs.10,000 from Kolkatta, Rs.4,000 from Mumbai.

b.Cash Sent Rs.2,000 to Kolkatta Rs.6,000 to Mumbai.

C.Kolkatta Branch (Apart from the above):

a.Sent Goods to Patna Rs.6,000.

b.Paid B/P Rs.4,000 to Patna, Rs.4,000 cash to Patna.

 

Problem 11: New Textiles ltd. operates a number of retail shops to which goods are invoiced at wholesale price which is cost plus 20%. Shops sell the goods at the list price which is wholesale price plus 10%. From the following particulars ascertain the profit or loss for 2003 at Shop No. 143:

Particulars

Amount

Stock at shop on 1st January, 2003

Goods invoiced to shop during 2003

Sale at the shop during the year

Goods destroyed by accident (retail value)

Expenses at the shop

15,000

1,40,000

1,54,770

660

7,200

 

 

Problem 12: Rahul Limited operates a number of retail outlets to which goods are invoiced at wholesale price which is cost plus 25%. These outlets sell the goods at the retail price which is wholesale price plus 20%. Following is the information regarding one of the outlets for the year ended 31.3.2003:

Particulars

Amount

Stock at the outlet 1.4.2002

Goods invoiced to the outlet during the year

Gross profit made by the outlet

Goods lost by fire

Expenses of the outlet for the year

Stock at the outlet 31.3.2003

30,000

3,24,000

60,000

?

20,000

36,000

 

You are required to prepare the following accounts in the books of Rahul Ltd. for the year ended 31.3.2003: Outlet Stock A/c, Outlet Profit & Loss A/c and Stock Reserve A/c.

 

Problem 13: Following is the trial balance of Jaipur Branch as on 30-6-2002:

Particulars

Rs.

Rs.

Furniture

Cash at bank & in hand

Office expenses

Rent

Debtors and Creditors

Salaries

Goods supplied to H.O.

Sales

Goods received from H.O.

Purchases

Stock, 1st July, 1991

H.O. account

1400

1780

470

960

3700

1500

---

---

8000

48800

6000

3240

---

---

---

---

1850

---

6000

38000

---

---

---

---

 

Closing stock was valued at 2,700. The Branch A/c in the H.O. books on 30th June, 2002, stood at Rs.460 (Dr.). Goods worth Rs.2,500 sent by H.O. to Branch and remittance of Rs.1,200 sent by Branch to H.O. were in transit. A provision for doubtful debts is to be raised at 2% on debtors and furniture is to be depreciated by 10%. Incorporate the branch T.B. in H.O. books.

 

Problem 14: A madras Head office has an independent branch at Ahmedabad. From the following particulars, give journal entries to close the books of the Ahmedabad Branch. Show also the Madras Head office account in the Branch books.

Ahmedabad Branch (Trail Balance as at 31st December 2002)

Particulars

Rs.

Particulars

Rs.

Stock on 1st Jan 2002

Purchases

Wages

Manufacturing exp.

Rent

Salaries

Debtors

General exp.

Goods recd. from H.O.

Cash at bank

8,200

12,800

6,550

3,400

1,700

5,500

4,000

2,000

7,200

750

Creditors

Sales

Head Office A/c

Discount

Purchase Returns

 

2,700

34,950

14,000

150

300

 

a.Closing stock at Branch Rs.14,350 & Rent due Rs.150.

b.The Branch Fixed Assets maintained in H.O. books were: Machinery Rs.25,000, Furniture Rs.1,000. Depreciation is to be charged at 10% on Machinery & 15% on Furniture.

c.A remittance of Rs.4,000 made by the branch on 28th December, 2002, was received by the H.O. on 4th January, 2003.

 

Problem 15: A business has three branches at Kochi, Kolkatta and Cuttack. The head office at Chennai purchases goods and sends them to branches, to be sold at a uniform percentage of profit on cost. The following particulars are made available to you to enable you to prepare a combined Trading A/c for the year ended 31st March, 2002.

Particulars

Chennai

Kochi

Kolkatta

Cuttack

Stock on 1st April, 2001

Purchases in the year

Sales

Stock on 31st March, 2002

Branch A/cs on 1st April, 2001

Kochi

Kolkata

Cuttack

54,000

2,74,000

-

28,000

 

15,000

32,000

4,000

16,000

-

1,80,000

6,000

12,500

-

1,20,000

5,000

10,000

-

1,00,000

2,500

Remittances from branches

3,20,000

1,50,000

1,00,000

70,000

 

Chennai office invoices goods to the branches at fixed sales prices but maintains Branch accounts in its ledger at cost price. Show Branch Accounts in Chennai H.O. Books.

 


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