Branch Accounting for Independent Branches

 

BRANCH ACCOUNTING

FOR INDEPENDENT BRANCHES

 

Part A: Discussion of methods and techniques along with the related journal entries, accounts and other formats and tables

Part B: 5 Illustrations with solutions

Part A

When the size of a branch is very large with many complex functions and the branch establishes and maintains its own double entry book-keeping system quite separate from that of the head office, the branch is called an independent branch. An independent branch is given more freedom of action, with the branch manager acquiring more responsibility than that of a dependent branch. Apart from receiving goods from the head office, these branches are allowed to purchase goods from the open market locally. From the amount received from cash sales or debtors, they can incur their own expenses. They can also operate the bank account in their own name.

 

As part of accounting system for independent branches each branch in its ledger maintains a Head Office Account and the head office in its ledger maintains a Branch Account for each of the branches. These accounts are personal in nature and all transactions between the head office and the branches are passed through these accounts. With respect to a particular branch, the Branch Account in the books of the head office and the Head Office Account in the books of the branch will have equal and opposite balances, if the book-keeping is up to date and accurate in the books of both the head office and the branch.

 

Formats of “Branch Account” and “Head Office Account”

Following Branch A/c and Head Office A/c are prepared by the H.O. and the Branch respectively before passing the necessary adjustment journal entries and the incorporation journal entries in their respective books of accounts.

In the books of the Head Office

.............. Branch Account

Particulars	Rs	Particulars	Rs
To  Balance b/d	***	By  Bank A/c (cash received from branch)	***
To  Goods Sent to Branch A/c	***	By  Goods Returned from  Branch A/c	***
To  Bank A/c (branch expenses paid by       head office)	***	By  Balance c/d	*** ( T )
	***		***

 

In the books of the Branch

Head Office Account

Particulars	Rs	Particulars	Rs
To  Bank A/c (cash remitted to       head office)	***	By  Balance b/d	***
To  Goods Returned to Head Office A/c	***	By  Goods Received from Head Office A/c	***
To  Balance c/d	***	By  Expenses A/c (branch expenses paid   by head office)	***
	***		***

 

Steps to be followed for maintaining

ACCOUNTING SYSTEM OF AN INDEPENDENT BRANCH

1.  At the end of the accounting period, the branch prepares its Trial Balance and Trading and Profit And Loss Account, and sends copies of these statements to the head office for incorporation.

2.  After receiving the final statements from the branch, the head office reconciles between the two balances: the balance of the Branch Account as would appear in the books of the head office and the balance of the Head Office Account as would appear in the books of the branch. Necessary adjustment journal entries are passed in the books of the head office to remove the differences between the two balances. (After these journal entries are passed, the “Branch Account” balance become equal to the “Head Office Account” balance).

3.  Head office prepares Trading and Profit and Loss Account for each of the branches.

4.  Necessary incorporation journal entries are passed in the books of the head office to incorporate the branch accounts/trial balance in its books of accounts.

5.  After these adjustment and incorporation journal entries are passed, the Head Office again prepares the “Branch Account” for each of the branches as follows:

 

In the books of the Head Office

.............. Branch Account

Particulars	Rs	Particulars	Rs
To Balance b/d	( T )	By Cash-in-transit A/c
To General Profit and Loss A/c     [For Branch Profit]		By General Profit and Loss A/c     [For Branch Loss]
To Branch Creditors		By Branch Stock A/c
		By Goods-in-transit A/c
		By Branch Debtors A/c
		By Branch Cash/Bank A/c
		By Branch Fixed Assets (Net) A/c

 

The important point about the above Branch Account to be noted is that this Branch Account will not have any closing balance.

 

6.  Head office prepares its own Trading and Profit and Loss Account.

7.  Head office prepares Balance Sheet of the business as a whole.

8.  Branch closes its books of accounts and prepares its Balance Sheet.

 

   Regular Journal Entries made in the Books of Head Office and Branch

Sl. No.	Transactions	In the books of H.O.	In the books of Branch
1	Despatch of goods to Branch by H.O.	Branch A/c             Dr   To Goods sent to Branch A/c	Goods received from H.O    Dr   To H.O. A/c
2	Return of goods to H.O. by Branch	Reverse entry of above	Reverse entry of above
3	Branch expenses paid by the Branch	No entry	Expenses A/c           Dr   To Cash/Bank A/c
4	Branch expenses paid by the H.O.	Branch A/c              Dr   To Bank A/c	Expenses A/c           Dr   To H.O. A/c
5	Purchases made by the Branch	No entry	Purchases A/c          Dr   To Cash/Bank/Creditors A/c
6	Sales effected by the Branch	No entry	Cash/Bank/Debtors A/c    Dr   To Sales A/c
7	Collection from debtors of the Branch received by the H.O.	Cash/Bank A/c         Dr   To Branch A/c	H.O. A/c                  Dr   To Debtors A/c
8	Payment by H.O. for purchases made by the Branch	Branch A/c              Dr   To Cash/Bank A/c	Purchases/Creditors A/c   Dr   To H.O. A/c
9	Purchase of fixed asset by the Branch (Fixed asset A/c is maintained in the Branch books)	No entry	Fixed asset A/c          Dr   To Cash/Bank/Liability A/c
10	Purchase of fixed asset by the Branch (Fixed asset A/c is maintained in the H.O. books)	Branch fixed asset A/c   Dr   To Branch A/c	H.O. A/c                   Dr   To Cash/Bank/Liability A/c
11	Depreciation on (9) above	No entry	Depreciation A/c        Dr   To Fixed asset A/c
12	Depreciation on (10) above	Branch A/c              Dr   To Branch fixed asset A/c	Depreciation A/c        Dr   To H.O. A/c
13	Remittance of funds by H.O. to Branch	Branch A/c              Dr   To Bank A/c	Bank A/c                 Dr   To H.O. A/c
14	Remittance of funds by Branch to H.O.	Bank A/c                Dr   To Branch A/c	H.O. A/c                 Dr   To Bank A/c
15	Transfer of goods from one Branch to another Branch	Receiving Branch A/c    Dr   To Supplying Branch A/c	In Books of Supplying Branch: H.O. A/c                Dr   To Goods received from H.O. In Books of Receiving Branch: Goods received from H.O   Dr   To H.O. A/c
16	H.O. expenses chargeable to Branch	Branch A/c             Dr   To Expenses A/c	H.O. expenses A/c       Dr   To H.O. A/c

 

   Adjustment Journal Entries made in the Books of Head Office and Branch

Sl. No.	Transactions	In the books of H.O.	In the books of Branch
1	Goods in transit (Goods sent by H.O.)	No entry	Goods in transit A/c     Dr   To H.O. A/c
2	Cash in transit (Cash remitted by Branch)	Cash in transit A/c     Dr   To Branch A/c	No entry
3	Direct collection from customer of Branch by H.O. not informed to the Branch	No entry	H.O. A/c                   Dr   To Debtors A/c
4	Payment by Branch to the suppliers of H.O. not recorded in the books of H.O.	Creditors A/c           Dr   To Branch A/c	No entry

 

INCORPORATION OF BRANCH TRIAL BALANCE

In the books of the head office

The incorporation of Branch Trial Balance can be divided into two parts:

(a)    Incorporation of Branch Profit and Loss; and

(b)    Incorporation of Branch Assets and Liabilities.

 

Incorporation of Branch Profit and Loss

For the purpose of incorporation of branch profit and loss, the head office may follow any of the following two methods:

(i)    Detailed Incorporation

(ii)   Abridged Incorporation

 

Detailed Incorporation – Journal Entries

Under this method following journal entries are passed in the books of the head office to incorporate the branch profit and loss:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Branch Trading A/c                      Dr
	To Branch A/c
	(For total amount of opening stock, purchases, carriage inwards, wages, goods received from head office, sales returns, etc. – excluding gross profit)
2	Branch A/c                                 Dr
	To Branch Trading A/c
	(For total amount of sales, goods sent to head office, closing stock, purchases returns, abnormal loss of stock, etc. – excluding gross loss)
3	Branch Trading A/c                      Dr
	To Branch Profit and Loss A/c
	(For gross profit of the branch)
4	Branch Profit and Loss A/c            Dr
	To Branch Trading A/c
	(For gross loss of the branch)
5	Branch Profit and Loss A/c            Dr
	To Branch A/c
	(For total amount of salaries, rent, depreciation, bad debts, repairs, discount allowed, etc. excluding net profit)
6	Branch A/c                                Dr
	To Branch Profit and Loss A/c
	(For total amount of miscellaneous incomes, discount received, etc. – excluding net loss)
7	Branch Profit and Loss A/c            Dr
	To General Profit and Loss A/c
	(For net profit of the branch)
8	General Profit and Loss A/c            Dr
	To Branch Profit and Loss A/c
	(For net loss of the branch)

 

Abridged Incorporation – Journal Entries

Under this method only one journal entry is passed in the books of the head office to incorporate the branch profit and loss. The journal entry is:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
A	Branch A/c                              Dr
	To General Profit and Loss A/c
	(For net profit of the branch)
B	General Profit and Loss A/c         Dr
	To Branch A/c
	(For net loss of the branch)

 

Incorporation of Branch Assets and Liabilities

For the purpose of incorporation of branch assets and liabilities in the annual Balance Sheet of the whole business, following journal entries are made in the books of the head office:

 

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Branch Assets A/c                      Dr
	To Branch A/c
	[For branch assets (If the accounts of branch fixed assets are maintained at the branch) - (No entry is to be made if the accounts of branch fixed assets are maintained at the head office)]
2	Branch A/c
	To Branch Liabilities A/c
	(For branch liabilities)

CLOSING THE BOOKS OF ACCOUNTS OF THE BRANCH

At the end of the accounting year, the books of accounts of the branch are also closed. For this purpose following two methods can be adopted by the branch:

 

METHOD: 1 – JOURNAL ENTRIES

1.        For all the revenue items on the debit side of the Branch Trading and Profit and Loss Account in the books of the branch (except Gross Profit/Net Profit) –

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Head Office A/c                               Dr
	To Opening Stock A/c
	To Purchase A/c
	To Sales Returns A/c
	To Goods Received from Head Office A/c
	To Wages A/c
	To Carriage Inwards A/c
	To Rent A/c
	To Salaries A/c
	To Discount Allowed A/c
	To Depreciation A/c

 

2.        For all the revenue items on the credit side of the Branch Trading and Profit and Loss Account in the books of the branch (except Gross Loss/Net Loss, if any) –

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Sales A/c                                       Dr
	Purchases Returns A/c                      Dr
	Closing Stock A/c                             Dr
	Discount Received A/c                      Dr
	To Head Office A/c

3.    For all branch assets –

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Head Office A/c                                Dr
	To Closing Stock A/c
	To Debtors A/c
	To Stock-in-Transit A/c
	To Cash-in-Transit A/c
	To Cash at Bank A/c

 

4.        For all branch liabilities –

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Outstanding Expenses A/c                  Dr
	Creditors A/c                                    Dr
	To Head Office A/c

 

(After the above journal entries are passed, the Head Office Account in the books of the branch will not show any balance.)

 

METHOD: 2 – JOURNAL ENTRIES

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	for net profit –
	Profit and Loss A/c                         Dr
	To Head Office A/c
2	for net loss –
	Head Office A/c                             Dr
	To Profit and Loss A/c
3	For closing Assets Accounts –
	Head Office A/c                             Dr
	To Branch Assets A/c
4	For closing Liabilities Accounts –
	Branch Liabilities A/c                      Dr
	To Head Office A/c

 

(After the above journal entries are passed, the Head Office Account in the books of the branch will not show any balance.)

 

Note: If in the given problem it is asked to prepare the balance sheet in the books of the branch, branch assets and liabilities should not be transferred to Head Office Account and in such cases the closing balance of the Head Office Account after passing all the other entries will be transferred to the branch balance sheet in the books of the branch along with all branch assets and liabilities.

Part B

 

Illustration: 1

Salt Lake Corporation presented the following trial balance on 31.03.2013 to the H.O. at New Delhi.

Particulars	Debit (Rs)	Particulars	Credit (Rs)
New Delhi HO	6,480	Sales	76,000
Stock as on 1.4.2012	12,000	Goods returned to HO	12,000
Purchases	35,600	Creditors	3,700
Goods received from HO	18,000
Salaries	3,000
Debtors	7,400
Rent	1,920
Miscellaneous expenses	940
Furniture	2,800
Cash and Bank	3,560
	91,700		91,700

 

Additional Information:

The branch account on H.O. books on 31.03.2013 stood at Rs 920 (Debit). On 31.03.2013 the H.O. forwarded goods to the value of Rs 5,000 to the branch which are received on 3^rd July. A cash remittance of Rs 2,400 by branch on 29^th March, 2013 was received by the H.O. on 2^nd April, 2013. Closing Stock was valued at Rs 5,400.

 

Show the incorporation entries in the books of H.O. showing separate Branch Trading and Branch Profit and Loss Account, and also Prepare Branch Account and Branch Balance Sheet in H.O. books.

 

Solution to Illustration: 1

In the Books of New Delhi Head Office

Salt Lake Branch Trading and Profit and Loss Account for the year ended 31.3.2013

Particulars	Rs	Particulars	Rs
To Opening stock	12,000	By Sales	76,000
To Purchases	35,600	By Goods received from Branch	12,000
To Goods sent to Branch	18,000	By Closing stock	5,400
To Gross Profit c/d	27,800
	93,400		93,400
To Salaries	3,000	By Gross Profit b/d	27,800
To Rent	1,920
To Miscellaneous expenses	940
To Branch Net Profit	21,940
	27,800		27,800

 

Adjustment and Incorporation Journal Entries

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Adjustment journal entries:
31.03.13	Cash-in-transit A/c                             Dr		2,400
	To Salt Lake Branch A/c			2,400
	Incorporation journal entries:
31.03.13	Salt Lake Branch Trading A/c               Dr		65,600
	To Salt Lake Branch A/c			65,600
31.03.13	Salt Lake Branch A/c                          Dr		93,400
	To Salt Lake Branch Trading A/c			93,400
31.03.13	Salt Lake Branch Trading A/c                Dr		27,800
	To Salt Lake Branch Profit and Loss A/c			27,800
31.03.13	Salt Lake Branch Profit and Loss A/c      Dr		5,860
	To Salt Lake Branch A/c			5,860
31.03.13	Salt Lake Branch Profit and Loss A/c      Dr		21,940
	To General Profit and Loss A/c			21,940
31.03.13	Salt Lake Branch Furniture A/c              Dr		2,800
	Salt Lake Branch Stock A/c                  Dr		5,400
	Salt Lake Branch Goods-in-transit A/c    Dr		5,000
	Salt Lake Branch Debtors A/c               Dr		7,400
	Salt Lake Branch Cash/Bank A/c           Dr		3,560
	To Salt Lake Branch A/c			24,160
31.03.13	Salt Lake Branch A/c                          Dr		3,700
	To Salt Lake Branch Creditors A/c			3,700

 

Salt Lake Branch Account

Particulars	Rs	Particulars	Rs
To Balance b/d	920	By Branch Trading A/c	65,600
To Branch Trading	93,400	By Branch Profit and Loss A/c	5,860
To Branch Creditors	3,700	By Cash-in-transit A/c	2,400
		By Branch Furniture A/c	2,800
		By Branch Stock A/c	5,400
		By Goods-in-transit A/c	5,000
		By Branch Debtors A/c	7,400
		By Branch Cash/Bank A/c	3,560
	98,020		98,020

 

Salt Lake Branch Balance Sheet as at 31.3.2013

Liabilities	Rs	Rs	Assets	Rs	Rs
H.O. A/c (Op. Bal.)	920		Furniture		2,800
Add: Branch N/P	21,940	22,860	Stock		5,400
Creditors		3,700	Goods-in-transit		5,000
			Debtors		7,400
			Cash/Bank		3,560
			Cash-in-transit		2,400
		26,560			26,560

 

Illustration: 2

A Chennai 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 Chennai Head Office account in the branch books.

Ahmedabad Branch

Trial balance as at 31.12.2013

Particulars	Debit (Rs)	Particulars	Credit (Rs)
Stock on 1.1.2013	8,200	Creditors	2,700
Purchases	12,800	Sales	34,950
Wages	6,550	Head Office	14,000
Manufacturing expenses	3,400	Discount received	150
Rent	1,700	Purchase returns	300
Salaries	5,500
Debtors	4,000
General expenses	2,000
Goods received from HO	7,200
Cash at bank	750
	52,100		52,100

 

Additional Information:

(a)      Closing Stock at Branch Rs 14,350.

(b)      The branch fixed assets maintained at H.O. books were: Machinery Rs 25,000, Furniture Rs 1,000. Depreciations are to be allowed at 10% on Machinery and 15% on Furniture.

(c)      Rent due Rs 150.

(d)      A remittance of Rs 4,000 made by the Branch on 29^th December, 2013 was received by Head Office on 4^th January, 2014.

 

Solution to Illustration: 2

In the books of Ahmedabad Branch

Trading and Profit and Loss Account for the year ended 31.12.2013

Particulars	Rs	Rs	Particulars	Rs	Rs
To Opening stock		8,200	By Sales		34,950
To Goods from H.O.		7,200	By Closing stock		14,350
To Purchases	12,800
Less: Return	300	12,500
To Wages		6,550
To Mfg. Expenses		3,400
To Gross profit c/d		11,450
		49,300			49,300
To Salaries		5,500	By Gross profit b/d		11,450
To Rent	1,700		By Discount Recd.		150
Add: Outstanding	150	1,850	By H.O. A/c (loss)- b/f		400
To General expenses		2,000
To Depreciation:
On machinery	2,500
On furniture	150	2,650
		12,000			12,000

 

Journal Entries

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
31.12.13	Head Office A/c                  Dr		400
	To Profit and loss A/c			400
	(Branch net loss transferred)
31.12.13	Head Office A/c                  Dr		19,100
	To Debtors A/c			4,000
	To Closing stock A/c			14,350
	To Cash at bank A/c			750
	(Balances in branch current assets transferred)
31.12.13	Depreciation on fixed assets A/c    Dr		2,650
	To Head Office A/c			2,650
	(Depreciation on branch fixed assets maintained at head office transferred)
31.12.13	Creditors A/c                      Dr		2,700
	Outstanding rent A/c            Dr		150
	To Head Office A/c			2,850
	(Balances in branch current liabilities transferred)

 

Chennai Head Office Account

Particulars	Rs	Particulars	Rs
To Profit and loss A/c (branch loss)	400	By Balance b/d	14,000
To Debtors A/c	4,000	By Creditors A/c	2,700
To Closing stock A/c	14,350	By Outstanding rent A/c	150
To Cash at bank A/c	750	By Depreciation on fixed assets A/c	2,650
	19,500		19,500

 

Illustration: 3

A merchant of Kolkata opens a new branch in Mathura, which trades independently of the Head Office. The transactions of the Branch for the year ended 31.3.2013 are as under:

Particulars	Rs	Rs
Goods supplied by head office		20,00,000
Purchases from outsiders:
Credit	15,55,000
Cash	3,00,000	18,55,000
Sales:
Credit	25,05,000
Cash	4,60,000	29,65,000
Cash received from customers		30,45,000
Paid to trade creditors		14,25,000
Expenses paid by branch		8,95,000
Furniture purchased by branch on credit		3,50,000
Cash received from head office initially		4,00,000
Remittances to head office		11,00,000

 

Additional Information:

1.    The accounts of the Branch Fixed Assets are maintained in the Head Office books.

2.    Write off depreciation on furniture at 5 percent per annum for full year.

3.    A remittance of Rs 2, 00,000 from the Branch to the Head Office is in transit.

4.    The Branch values its closing stock at Rs 12, 00,000.

 

Prepare the Trading and Profit and Loss Account, Balance Sheet, and Head Office Account in the books of the Branch.

 

Solution to Illustration: 3

In the books of Mathura Branch

Trading and Profit and Loss Account for the year ended 31.03.2013

Particulars	Rs	Particulars	Rs
To Goods received from H.O.	20,00,000	By Sales	29,65,000
To Purchases	18,55,000	By Closing stock	12,00,000
To Gross Profit c/d	3,10,000
	41,65,000		41,65,000
To Expenses	8,95,000	By Gross Profit b/d	3,10,000
To Depreciation on furniture	17,500	By H.O. A/c(Net Loss transferred)	6,02,500
	9,12,500		9,12,500

 

Head Office A/c (Method: 1)

Particulars	Rs	Particulars	Rs
To Goods received from H.O.	20,00,000	By Sales	29,65,000
To Purchases	18,55,000	By Closing stock	12,00,000
To Expenses	8,95,000	By Depreciation on furniture	17,500
To Depreciation on furniture	17,500	By Goods received from H.O.	20,00,000
To Creditors (For Furniture)	3,50,000	By Cash (Remittance from H.O.)	4,00,000
To Cash (Remittance to H.O.)	11,00,000
To Balance c/d (Transferred to balance sheet)	3,65,000
	65,82,500		65,82,500

 

Head Office A/c (Method: 2)

Particulars	Rs	Particulars	Rs
To Profit and Loss A/c (Net Loss)	6,02,500	By Cash (Remittance from H.O.)	4,00,000
To Creditors (For Furniture)	3,50,000	By Goods received from H.O.	20,00,000
To Cash (Remittance to H.O.)	11,00,000	By Depreciation on furniture	17,500
To Balance c/d (Transferred to balance sheet)	3,65,000
	24,17,500		24,17,500

 

Balance Sheet as at 31.03.2013

Liabilities	Rs	Assets	Rs
H.O. A/c	3,65,000	Closing Stock	12,00,000
Trade Creditors (15,55,000 – 14,25,000)	1,30,000	Cash/Bank [W.N.]	1,85,000
Creditor for Furniture	3,50,000
Advance from Debtors (30,45,000 – 25,05,000)	5,40,000
	13,85,000		13,85,000

 

   Working note:

Cash/Bank A/c

Particulars	Rs	Particulars	Rs
To H.O.	4,00,000	By Purchases	3,00,000
To Sales	4,60,000	By Creditors	14,25,000
To Debtors	25,05,000	By Expenses	8,95,000
To Advance from Debtors	5,40,000	By H.O.	11,00,000
		By Balance c/d	1,85,000
	39,05,000		39,05,000

 

Important note:

No journal entry is made in the books of the branch for any cash-in-transit (cash remitted by the branch but not yet received by the H.O.), because amount of cash-in-transit is already included in the total amount remitted by the branch to the H.O. and a journal entry has already been made in the books of the branch for the total amount remitted by the branch to the H.O. The Adjustment Journal Entry for such cash-in-transit is actually required to be made in the books of the head office.

 

Illustration: 4

The Head Office of Z Ltd. and its Branch keep their own books of accounts and prepare own Profit and Loss Account. The following are the balances appearing in the two sets of the books as on 31.3.2013 after ascertainment of profits and after making all adjustments except those referred to below:

Particulars	Head Office		Branch
	Debit (Rs)	Credit (Rs)	Debit (Rs)	Credit (Rs)
Capital		1,00,000
Fixed assets	36,000		16,000
Stock	34,200		10,740
Debtors / Creditors	7,820	3,960	4,840	1,920
Cash	10,740		1,420
Profit and loss account		14,660		3,060
Branch Account	29,860
Head Office Account				28,020
Total	1,18,620	1,18,620	33,000	33,000

 

Prepare the Balance Sheet of the business as on 31.3.2013 and the journal entries necessary (in both sets of books) to record the adjustments dealing with the following:

1.    On 31.3.2013 the branch had sent a cheque for Rs 1,000 to the head office, not received by them nor credited to the branch till next month.

2.    Goods valued at Rs 440 had been forwarded by the head office to the branch and invoiced on 30.3.2013, but were neither received by the branch nor dealt with in their books till next month.

3.    It was agreed that the branch should be charged with Rs 300 for Administration Services, rendered by the Head Office during the year.

4.    Stock stolen in transit from the Head Office to the Branch and charged to the Branch by the Head Office but not credited to the Head Office in the Branch Books as the Manager declined to admit any liability, Rs 400 (not covered by insurance).

5.    Depreciation of Branch Assets, of which accounts are maintained by the Head Office, not provided for Rs 250.

6.    The balance of Profits shown by the Branch is to be transferred to HO Books.

 

Solution to Illustration: 4

In the books of Head Office

Journal Entries

	Particulars	LF	Rs	Rs
31.03.13	Cash-in-transit A/c                       Dr		1,000
	To Branch A/c			1,000
	(Cash remitted by Branch not received by H.O.)
31.03.13	Branch A/c                                  Dr		300
	To Profit and Loss A/c			300
	(Share of H.O. expenses charged to Branch)
31.03.13	Profit and Loss A/c                        Dr		400
	To Branch A/c			400
	(Abnormal loss charged to Branch now reversed)
31.03.13	Branch A/c                                   Dr		250
	To Branch Fixed Assets			250
	(Depreciation on Branch fixed assets accounts of which are maintained in the H.O. books)

 

Profit and Loss A/c

Particulars	Rs	Particulars	Rs
To Branch A/c	400	By Balance b/d	14,660
To Balance c/d	14,560	By Branch A/c	300
	14,960		14,960

 

Branch A/c

Particulars	Rs	Particulars	Rs
To Balance b/d	29,860	By Cash-in-transit A/c	1,000
To Profit and Loss A/c	300	By Profit and Loss A/c	400
To Branch Fixed Assets A/c	250	By Balance c/d	29,010
	30,410		30,410

 

In the books of Branch

Journal Entries

	Particulars	LF	Rs	Rs
31.03.13	Goods-in-transit A/c                       Dr		440
	To Head Office A/c			440
	(Goods sent by H.O. not received by Branch)
31.03.13	Profit and Loss A/c                         Dr		300
	To Head Office A/c			300
	(Share of H.O. expenses charged to Branch)
31.03.13	Profit and Loss A/c                         Dr		250
	To Head Office A/c			250
	(Depreciation on Branch fixed assets accounts of which are maintained in the H.O. books)

 

Profit and Loss A/c

Particulars	Rs	Particulars	Rs
To Head Office A/c	300	By Balance b/d	3,060
To Head Office A/c	250
To Balance c/d	2,510
	3,060		3,060

 

Head Office A/c

Particulars	Rs	Particulars	Rs
		By Balance b/d	28,020
		By Goods-in-transit	440
		By Profit and Loss A/c	300
To Balance c/d	29,010	By Profit and Loss A/c	250
	29,010		29,010

 

Balance Sheet of Z Limited (H.O.) as at 31.3.2013

Liabilities	Rs	Rs	Assets	Rs	Rs
Capital		1,00,000	Fixed assets:
Net profit:			Head office	36,000
Head office	14,560		Branch	16,000
Branch	2,510	17,070	Less: Depreciation	(250)	51,750
Trade creditors:			Closing stock:
Head office	3,960		Head office	34,200
Branch	1,920	5,880	Branch	10,740
Branch A/c (HO Books)		(29,010)	Goods-in-transit	440	45,380
HO A/c (Branch Books)		29,010	Trade debtors:
			Head office	7,820
			Branch	4,840	12,660
			Cash:
			Head office	10,740
			Branch	1,420
			Cash-in-transit	1,000	13,160
		1,22,950			1,22,950

 

Illustration: 5

Puskar Enterprise has its H.O. in Ranchi and a branch in Imphal. The following Trial Balance has been extracted from the books of accounts as at 31^st March, 2013:

Particulars	Head Office		Branch
	Debit (Rs)	Credit (Rs)	Debit (Rs)	Credit (Rs)
Capital		16,50,000
Debtors	3,00,000		1,80,000
Creditors		1,50,000
Purchases	27,42,000
Sales		25,50,000		13,11,000
Goods sent to branch at I.P.		11,40,000	11,25,000
Fixed assets (Net)	10,50,000		2,00,000
Stock (as on 1.4.2012)	24,000		60,000
Stock adjustment (unrealised profit)		12,000
Head office current account				3,60,000
Brach current account	5,25,000
Administration and selling expenses	8,41,500		74,500
Cash and bank	46,500		39,000
Provision for bad debts		27,000		7,500
Total	55,29,000	55,29,000	16,78,500	16,78,500

 

Other relevant information:

1.    All goods are purchased by the H.O. Goods are sent to branch at cost plus 25%.

2.    Stocks on 31.3.2013 are valued at: HO – Rs 36,000, and Branch – Rs 45,000 (at IP).

3.    Depreciation is to be provided on fixed assets at 10% on book value.

4.    Bad debts provision is to be maintained at 5% on debtors as at the end of the year.

5.    Cash-in-transit from branch to H.O. at 31^st March, 2013 was Rs 1, 50,000.

6.    Goods-in-transit from H.O. to branch at 31^st March, 2013 at invoice price was Rs 15,000.

 

Prepare in Columnar from, the branch and H.O. Trading and Profit and Loss Accounts for the year ended 31^st March, 2013 and a combined Balance Sheet of Puskar Enterprises as on that date.

 

Solution to Illustration: 5

Trading and Profit and Loss Account

For the year ended 31.03.2013

Particulars	H.O. (Rs)	Br (Rs)	Particulars	H.O. (Rs)	Br (Rs)
Opening stock	24,000	60,000	Sales	25,50,000	13,11,000
Purchases	27,42,000		Goods sent to branch	11,40,000
Goods from H.O.		11,40,000	Goods-in-transit		15,000
Gross profit c/d	9,60,000	1,71,000	Closing stock	36,000	45,000
	37,26,000	13,71,000		37,26,000	13,71,000
Administration and Selling expenses	8,41,500	74,500	Gross profit b/d	9,60,000	1,71,000
Stock reserve on Cl. Stock (including Goods-in-transit) [60,000 × 25/125]	12,000		Stock reserve on Op. Stock [60,000 × 25/125]	12,000
Provision for b/debts (New)	15,000	9,000	Provision for b/debts (Old)	27,000	7,500
Depreciation on Fixed Assets	1,05,000	20,000
Net profit	25,500	75,000
	9,99,000	1,78,500		9,99,000	1,78,500

 

Balance Sheet of Puskar Enterprises as at 31.03.2013

Liabilities	Rs	Rs	Assets	Rs	Rs
Capital		16,50,000	Fixed assets:
Net profit:			Head office	10,50,000
Head office	25,500		Branch	2,00,000
Branch	75,000	1,00,500	Less: Depreciation	(1,25,000)	11,25,000
Trade Cr. (HO)		1,50,000	Closing stock:
Br. A/c (HO Books)	5,25,000		Head office	36,000
Less: Cash-in-transit	(1,50,000)	(3,75,000)	Branch	45,000
HO A/c (Br. Books)	3,60,000		Goods-in-transit	15,000
Add: Goods-in-transit	15,000	3,75,000	Less: Stock reserve	(12,000)	84,000
			Debtors:
			Head office	3,00,000
			Branch	1,80,000
			Less: Prov. For b/d	(24,000)	4,56,000
			Cash:
			Head office	46,500
			Branch	39,000
			Cash-in-transit	1,50,000	2,35,500
		19,00,500			19,00,500