cmabdtheblogger: Branch Accounting for Dependent Branches

BRANCH ACCOUNTING

FOR DEPENDENT BRANCHES

Part A: Discussion of basic theories explaining different methods of accounting for dependent branches including necessary journal entries w.r.t. each of these methods of accounting

Part B: 7 Illustrations with solutions

Part A

Classification of Branches

A. Inland Branches:

i. Dependent Branches: branches in respect of which the whole of the accounting records are kept at Head Office only.

ii. Independent Branches: branches which maintain independent accounting records.

B. Foreign Branches:

Branches which are located in a foreign country (i.e. in a country other than in which the company is incorporated and registered)

Accounting for Dependent Branches

When the policies and administration of a branch are totally controlled by the head office the branch is called a dependent branch. Accounts of a dependent branch are maintained by the head office. In fact, dependent branches are neither expected nor required to maintain detailed books of accounts, although they may keep small records for small local purchases and day to day petty cash expenses. Dependent branches send the entire amount of collection from cash sales and from debtors to the head office as immediately as possible. Cash required for branch expenses including establishment expenses are remitted every month by the head office to the branch.

There are three methods of accounting for transactions of a dependent branch which are –

1. Final Accounts Method, 2. Debtors Method and 3. Stock and Debtors Method.

FINAL ACCOUNTS METHOD

(When stocks in the Branch Trading A/c are taken at cost price)

Under this method a branch is treated as a cost centre and a Branch Trading and P/L A/c is prepared in the books of the head office to find out the profit or loss made by the branch. All the items of the Branch Trading and P/L A/c Account (except sales at branch) have to be converted into cost price, if these are given at invoice price. The Branch Trading and P/L A/c under this method is a memorandum account and, therefore, the entries made therein do not follow the double entry system of book keeping. The only object of this account is to disclose profit made or loss incurred by the branch.

FINAL ACCOUNTS METHOD

(When stocks in the Branch Trading A/c are taken at wholesale / invoice price)

Under this method a branch is treated as a profit centre. Under this method also a Branch Trading and P/L A/c is prepared in the books of the head office as per the following broad guidelines:

1. Branch Trading A/c is debited with opening stock (if any) at wholesale/invoice price.

2. Branch Trading A/c is debited with goods sent to branch (net) at wholesale/invoice price.

3. Branch Trading A/c is debited with all direct expenses incurred at the branch.

4. Branch Trading A/c is credited with goods sold by branch at actual retail selling price.

5. Branch Trading A/c is credited with closing stock (if any) at wholesale/invoice price.

6. Journal entry for loading on opening stock in the branch:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Stock Reserve A/c Dr
	To Branch Trading A/c
	(Loading on opening stock in the branch) [IP – CP]

7. Journal entry for loading on closing stock in the branch:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Branch Trading A/c Dr
	To Stock Reserve A/c
	(Loading on closing stock in the branch) [IP – CP]

8. Journal entry for loading on goods sent to branch (net):

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Goods Sent to Branch A/c Dr
	To Branch Trading A/c
	(Loading on net goods sent to branch) [IP – CP]

9. Journal entry for transferring branch gross profit to Branch Profit and Loss Account:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Branch Trading A/c Dr
	To Branch P/L A/c
	(Branch gross profit transferred to Branch P/L A/c)

10. Branch P/L A/c is debited with all indirect expenses incurred at the branch.

11. Journal entry for transferring Branch Profit to General Profit and Loss Account:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	Branch P/L A/c Dr
	To General P/L A/c
	(Branch profit transferred to General P/L A/c)

12. Journal entry for transferring Branch Loss to General Profit and Loss Account:

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
	General P/L A/c Dr
	To Branch P/L A/c
	(Branch loss transferred to General P/L A/c)

GENERAL PROFIT AND LOSS ACCOUNT

After branch profit or loss is transferred from Branch P/L A/c, following entries are made in the General Profit and Loss A/c to arrive at the profit or loss made by the business as a whole:

13. General Profit and Loss A/c is debited with −

a) Opening stock at head office (if any) at invoice / wholesale price,

b) Goods purchased at head office,

c) Loading on goods sent to branch (net)

d) Other expenses incurred at head office, and

e) Stock reserve for loading on closing stock of branch and head office when goods are sent to branch at wholesale price (Wholesale Price – Cost Price).

14. General Profit and Loss A/c is credited with –

a) Direct sales at head office (generally at wholesale price),

b) Goods sent to branch (net) at invoice / wholesale price,

c) Closing stock at head office (if any) at invoice / wholesale price, and

d) Stock reserve for loading on opening stock of branch and head office when goods are sent to branch at wholesale price (Wholesale Price – Cost Price).

DEBTORS METHOD

Under this method a Branch Account is opened for each branch in the books of head office. All transactions relating to the branch are recorded in this account. The Branch Account is prepared in such a way that it discloses the profit or loss of the branch.

In the books of the Head Office

...... Branch Account

Particulars	Rs	Particulars	Rs
To Balance b/d:		By Balance b/d:
Stock	×××	Creditors	×××
Debtors	×××	Outstanding Expenses	×××
Petty Cash	×××	By Bank:
Furniture	×××	Collection from Br. Debtors	×××
Prepaid Expenses	×××	Remittance from Branch	×××
To Goods Sent to Branch	×××	By Goods Sent to Branch (Returned by Branch to H.O.)	×××
To Bank:		By Abnormal Loss	×××
Payment of Branch Expenses	×××	By Goods Sent to Branch (Loading on net goods sent to branch)	×××
Remittance to Branch	×××	By Stock Reserve (Loading on opening stock)	×××
To Abnormal Loss (Loading)	×××	By Balance c/d:
To Stock Reserve (Loading on closing stock)	×××	Stock	×××
To Balance c/d:		Debtors	×××
Creditors	×××	Petty Cash	×××
Outstanding Expenses	×××	Furniture	×××
To General P/L A/c (Branch Profit)	×××	Prepaid Expenses	×××
		By General P/L A/c (Branch Loss)	×××
	×××		×××

Important Points:

1. Head office may send goods to branch either at “cost price” or “selling price” (also called invoice price). There will be no entry for loading in the above account if the goods are sent to branch at cost price. Here loading means the difference between invoice price and cost price. In the problem loading is usually given either as a percentage of cost price or as a percentage of invoice price.

2. No entry is required to be made in the above account for the following:

a) For credit sales

b) For normal loss (such as leakage, spoilage, pilferage, etc.)

c) For goods returned by customers to the branch

d) For branch expenses paid by the branch

e) For collection from branch debtors by the branch

f) For bad debts

g) For discount allowed to debtors

h) For depreciation on branch fixed assets

i) For profit or loss arising out of sale of any branch fixed asset

j) For shortage or surplus of stock

k) For purchases by the branch

l) For petty cash expenses paid the branch.

3. Goods Sent to Branch A/c will be closed by transferring the balance to Purchase A/c (in case of a trader) or Trading A/c (in case of a manufacturer).

4. Abnormal Loss A/c will be credited with the insurance claim received (if any) and the final balance of loss will be transferred to General Profit & Loss A/c.

STOCK AND DEBTORS METHOD

This method is generally used when the goods are sent to the branch at an invoice price and the size of the branch is large. Under this method following accounts are opened for each branch in the books of head office to exercise greater control over the branch stock and other related expenses:

1. Branch Stock Account

2. Branch Debtors Account

3. Goods Sent to Branch Account

4. Branch Cash Account

5. Branch Expenses Account

6. Branch Adjustment Account

7. Branch Profit and Loss Account, and

8. Branch Fixed Assets Account.

1. Branch Stock Account

This account is prepared to keep records of movements of branch stock at invoice price / selling price.

Branch Stock Account

Particulars	Rs	Particulars	Rs
To Balance b/d (Op. Stock at I.P.)		By Branch Cash (Cash Sales)
To Goods Sent to Branch (Goods sent by H.O. to Branch at I.P.)		By Branch Debtors (Credit Sales)
To Branch Debtors (Goods returned by Branch Debtors)		By Goods Sent to Branch (Goods Returned by Branch to H.O. at I.P.)
To Goods Sent to Branch (Goods received From other branches at I.P.)		By Goods Sent to Branch (Goods Transferred to other branches at I.P.)
To Branch Adjustment [(Actual Selling Price – Invoice Price) for both cash Credit sales]		By Branch Adjustment [(Invoice Price – Actual Selling Price) for both cash Credit sales]
To Surplus at I.P.		By Normal Loss at I.P.
		By Abnormal Loss at I.P.
		By Shortage at I.P.
		By Balance c/d (Cl. Stock at I.P.)

Important Note: How to calculate Shortage and Surplus:

Step 1: Convert Cash Sales and Credit Sales (given in selling price) into Invoice Price;

Step 2: Pass all the entries of Branch Stock Account including Opening Stock, Closing Stock, Cash Sales and Credit Sales in a Memorandum Branch Stock Account at Invoice Price

Step 3: Shortage = Debit Side Total – Credit Side Total

Surplus = Credit Side Total – Debit Side Total

2. Branch Debtors Account

This account is prepared to keep records of transactions with the branch debtors like any other Debtor’s A/c or Sundry Debtors’ A/c.

Branch Debtors’ Account

Particulars	Rs	Particulars	Rs
To Balance b/d		By Bank (collection from debtors)
To Branch stock (credit sales)		By Discount allowed
		By Bad debts
		By Branch stock (goods returned by branch debtors to branch)
		By Goods sent to branch (goods returned by branch debtors directly to head office)
		By Balance c/d

3. Goods Sent to Branch Account

This account is prepared with the transfer entries from the Branch Stock A/c. This account is also debited with the loading on net goods sent to branch. The balance of this account is transferred to Purchase A/c (in case of a trader) or Trading A/c (in case of a manufacturer).

4. Branch Cash Account

This account is prepared to keep records of movements of branch cash.

5. Branch Expenses Account

This account is prepared to keep records of all cash and non-cash branch expenses. The balance of this account is transferred to Branch Profit and Loss A/c.

6. Branch Adjustment Account

This account is prepared with all the loadings. The balance of this account is either Gross Profit or Gross Loss and is transferred to Branch Profit and Loss A/c.

Branch Adjustment Account

Particulars	Rs	Particulars	Rs
To Stock Reserve (Loading on Cl. Stock)		By Stock Reserve (Loading on Op. Stock)
To Shortage (Loading)		By Surplus (Loading)
To Normal Loss / Abnormal Loss (Loading)		By Goods Sent to Branch (Loading on Net Goods Sent)
To Branch Stock [(Invoice Price – Actual Selling Price) for both Cash and Credit sales]		By Branch Stock [(Actual Selling Price – Invoice Price) for both Cash and Credit sales]
To Branch P/L (Branch Gross Profit)		By Branch P/L (Branch Gross Loss)

7. Branch Profit and Loss Account

All losses and expenses at cost (including the cost of shortage in stock and cost of normal loss) and the cost of surplus in stock are taken in this account. The balance of this account is transferred to General Profit and Loss A/c. Balances of Branch Expenses A/c and Branch Adjustment A/c are also transferred to this account. Here it should be noted that cost of abnormal loss (e.g. loss by fire, loss in transit, etc.) is not taken in this account. Cost of abnormal loss is charged to General Profit and Loss A/c.

Branch Profit and Loss Account

Particulars	Rs	Particulars	Rs
To Branch Adjustment (Br. Gross Loss)		By Branch Adjustment (Br. Gross Profit)
To Shortage (Cost of Shortage)		By Surplus (Cost of Surplus)
To Normal Loss (Cost of Normal Loss)		By General P/L (Branch Net Loss)
To Branch Expenses
To General P/L (Branch Net Profit)

Important Note:

Cost of Abnormal Loss will be directly transferred to General Profit and Loss Account.

8. Branch Fixed Assets Account

Separate Asset A/c for each of the branch fixed assets is maintained at the head office like any other normal fixed assets.

JOURNAL ENTRIES IN THE BOOKS OF HEAD OFFICE

(Dependent Branch – Stock and Debtors Method)

Date	Particulars	LF	Debit (Rs)	Credit (Rs)
1	Branch Stock A/c Dr
	To Goods Sent to Branch A/c
	(Goods sent to branch)

2	Goods Sent to Branch A/c Dr
	To Branch Stock A/c
	(Goods returned by branch to head office)

3	Goods Sent to Branch A/c Dr
	To Branch Debtors A/c
	(Goods returned by branch debtors directly to head office)

4	Branch Stock A/c Dr
	To Branch Debtors A/c
	(Goods returned by branch debtors to branch)

5	Branch Stock A/c Dr
	To Goods Sent to Branch A/c
	(Goods received from other branches)

6	Goods Sent to Branch A/c Dr
	To Branch Stock A/c
	(Goods transferred to other branches on advice of HO)

7	Branch Cash A/c Dr
	To Branch Stock A/c
	(Cash sales at actual selling price)

8	Branch Debtors A/c Dr
	To Branch Stock A/c
	(Credit sales at actual selling price)

9	Bills Receivables A/c Dr
	To Branch Debtors A/c
	(Bills accepted by branch debtors)

10	Branch Cash A/c Dr
	To Branch Debtors A/c
	(Cash collected from branch debtors)

11	Branch Expenses A/c Dr
	To Branch Debtors A/c
	(For bad debts, discount allowed, etc.)

12	Branch Expenses A/c Dr
	To Branch Fixed Assets A/c
	(For depreciation on branch fixed assets)

13	Branch Expenses A/c Dr
	To Branch Cash A/c
	(Branch expenses incurred in cash)

14	Branch Profit and Loss A/c Dr
	To Branch Expenses A/c
	(Balance of branch expenses account transferred to branch profit and loss account)

15	Shortage in Stock A/c Dr
	Normal Loss A/c Dr
	Abnormal Loss A/c Dr
	To Branch Stock A/c
	(For shortage in stock, normal loss and abnormal loss)

16	Branch Adjustment A/c Dr
	To Shortage in Stock A/c
	To Normal Loss A/c
	To Abnormal Loss A/c
	(For loading on shortage in stock, normal loss and abnormal loss)

17	Branch Profit and Loss A/c Dr
	To Shortage in Stock A/c
	To Normal Loss A/c
	(For cost of shortage in stock and normal loss)

18	Bank A/c Dr
	Branch Profit and Loss A/c
	To Abnormal Loss A/c
	(For cost of abnormal loss as reduced by the insurance claim received, if any)

19	Branch Stock A/c Dr
	To Surplus in Stock A/c
	(For surplus in stock)

20	Surplus in Stock A/c Dr
	To Branch Adjustment A/c
	(For loading on surplus in stock)

21	Surplus in Stock A/c Dr
	To Branch Profit and Loss A/c
	(For cost of surplus in stock)

22	Goods Sent to Branch A/c Dr
	To Branch Adjustment A/c
	(For loading on net goods sent to branch)

23	Stock Reserve A/c Dr
	To Branch Adjustment A/c
	(For loading on opening stock including stock in transit at the beginning)

24	Branch Adjustment A/c Dr
	To Stock Reserve A/c
	(For loading on closing stock including stock in transit at the end)

25	Branch Cash A/c Dr
	To Bank A/c
	(For remittance to branch by head office)

26	Bank A/c Dr
	To Branch Cash A/c
	(For remittance to head office by branch)

27	Branch Adjustment A/c Dr
	To Branch Profit and Loss A/c
	(For transferring branch gross profit)

28	Branch Profit and Loss A/c Dr
	To Branch Adjustment A/c
	(For transferring branch gross loss)

29	Branch Profit and Loss A/c Dr
	To General Profit and Loss A/c
	(For transferring branch net profit)

30	General Profit and Loss A/c Dr
	To Branch Profit and Loss A/c
	(For transferring branch net loss)

31	Goods Sent to Branch A/c Dr
	To Purchase A/c
	(For closing goods sent to branch account for a trader)

32	Goods Sent to Branch A/c Dr
	To Trading A/c
	(For closing goods sent to branch account for a manufacturer)

33	Branch Stock A/c Dr
	To Branch Adjustment A/c
	(For goods sold at above the invoice price) [(SP − IP) for both cash and credit sales]

34	Branch Adjustment A/c Dr
	To Branch Stock A/c
	(For goods sold at below the invoice price) [(IP − SP) for both cash and credit sales]

Branch Accounting

FOR DEPENDENT BRANCHES

SELECTED PROBLEMS

Part B

Illustration: 1

Y Ltd. with its H.O. in Delhi invoiced goods to its branch at Patna at 20% less than the catalogue price which is cost plus 50%, with instruction 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, prepare the Branch Trading and Profit and Loss Account for the year ended 31^st March 2013 in H.O. books so as to show the actual profit and loss for the branch for the year.

Particulars	Rs	Particulars	Rs
Stock on 1.4.2012 (Invoice Price)	12,000	Discount allowed to Debtors	13,365
Debtors (….)	10,000	Expense	6,000
Goods received from H.O. (I.P.)	1,32,000	Remittance to H.O.	1,20,000
Cash sales	46,000	Debtors (31.03.2013)	11,000
Credit Sales	1,00,000	Cash in hand (31.03.2013)	5,635
Cash received from Debtors	85,635	Stock on 31.03.2013 (I.P.)	15,000

It was further reported that a part of stock at the branch was lost by fire (not covered by insurance) during the year whose value is to be ascertained and provisions should be made for discount to be allowed to Debtors as on 31.03.2013 on the basis of years trend of prompt payment.

Solution:

IN THE BOOKS OF Y LIMITED (HEAD OFFICE)

Patna Branch Trading and Profit and Loss Account

For the year ended 31.03.2013

Particulars	Rs	Particulars	Rs
To Opening Stock (I.P.)	12,000	By Cash Sales	46,000
To Goods sent to branch (I.P.)	1,32,000	By Credit Sales	1,00,000
To Stock Reserve (Loading on Cl. Stock 15,000 × ²⁰/₁₂₀)	2,500	By Stock Reserve (Loading on Opening Stock 12,000 × ²⁰/₁₂₀)	2,000
To Abnormal Loss by Fire (Loading 3,000 × ²⁰/₁₂₀)	500	By Goods sent to branch (Loading 1,32,000 × ²⁰/₁₂₀)	22,000
To Gross Profit c/d	41,000	By Abnormal Loss by Fire (I.P.) – W.N. 2	3,000
		By Closing Stock (I.P.)	15,000
	1,88,000		1,88,000
To Discount allowed	13,365	By Gross Profit b/d	41,000
To Provision for discount (on Prompt Payment) – W.N. 3	1,337
To Abnormal Loss by Fire (at cost) (Rs 3,000 – 500)	2,500
To Branch Expenses	6,000
To General P/L A/c (Branch N/P transferred)	17,798
	41,000		41,000

Working Notes:

1. Relation among Cost Price, Catalogue Price and Invoice Price

Let, Cost Price =	Rs 100
∴ Catalogue Price = Rs 100 × 1.5	Rs 150
∴ Invoice Price = Rs 150 × 0.8	Rs 120

2. Computation of Abnormal Loss by Fire at I.P.

Memorandum Branch Stock A/c (at I.P.)

Particulars	Rs	Particulars	Rs
To Opening Stock (I.P.)	12,000	By Cash Sales (I.P.)	46,000
To Goods sent to branch (I.P.)	1,32,000	By Credit Sales (I.P.) (1,00,000 × ¹²⁰/₁₅₀)	80,000
		By Abnormal Loss by Fire at I.P. (b/f)	3,000
		By Closing Stock (I.P.)	15,000
	1,44,000		1,44,000

3. Computation of Provision for Discount on Prompt Payment

Discount allowed to debtors during the current year (Given)	Rs 13,365
∴ Total debtors who made prompt payment during the current year (13,365 ÷ 0.15)	Rs 89,100
Total debtors of current year (Op. Debtors + Credit Sales) ⇒ (10,000 + 1,00,000)	Rs 1,10,000
∴ Av. percentage of debtors making prompt payment [(89,100 ÷ 1,10,000) × 100]	81%
∴ Provision for discount on prompt payment (Rs 11,000 × 81% × 15%)	Rs 1,337

Illustration: 2

X Ltd. has a retail branch at Puri. Goods are sold at 60% profit on cost. The wholesale price is cost plus 40%. Goods are invoiced from Delhi H.O. to branch at Puri at Wholesale price. From the following particulars ascertain the profit made at H.O. and branch for the year ended 31^st March 2013.

Particulars	HO (Rs)	Branch (Rs)
Stock on 01.04.2012	7,00,000	-
Purchase	42,00,000	-
Goods sent to Branch (at invoice price)	15,12,000	-
Sales	42,84,000	14,40,000
Stock on 31.03.2013	16,80,000	2,52,000
Expenses	80,000	40,000

Sales at H.O. are made only on wholesale basis and that at branch only to customers. Stock at H.O. is valued at invoice price.

Solution:

IN THE BOOKS OF X LIMITED (HEAD OFFICE)

Puri Branch and HO Trading and Profit and Loss Account

For the year ended 31.03.2013

Particulars	HO (Rs)	Br. (Rs)	Particulars	HO (Rs)	Br. (Rs)
To Op. stock (WP)	7,00,000		By Sales	42,84,000	14,40,000
To Purchases	42,00,000
To Goods sent to Br. (WP)		15,12,000	By Goods sent to Br. (WP)	15,12,000
To Gross profit c/d	25,76,000	1,80,000	By Closing stock (WP)	16,80,000	2,52,000
	74,76,000	16,92,000		74,76,000	16,92,000
			By Gross profit b/d	25,76,000	1,80,000
To Stock reserve (Loading on HO Cl. Stock) [16,80,000× ⁴⁰/₁₄₀]	4,80,000		By Stock reserve (Loading on HO Op. Stock) [7,00,000 × ⁴⁰/₁₄₀]	2,00,000
To Stock reserve (Loading on Br. Cl. Stock) [2,52,000 × ⁴⁰/₁₄₀]	72,000
To Expenses	80,000	40,000
To General P/L A/c (Br. N/P transferred)	21,44,000	1,40,000
	27,76,000	1,80,000		27,76,000	1,80,000

Illustration: 3

From the following information, prepare Delhi Branch Account in the books of head office for the year ending on 31^st March 2013:

Particulars	Rs	Particulars	Rs
Opening Stock (at cost)	17,80,000	Discount allowed to Customers	5,000
Opening Debtors	1,40,000	Bad Debts written off	10,000
Opening Petty Cash	2,500	Credit sales	72,94,000
Furniture (in the beginning)	60,000	Cash Sales	3,20,000
Opening Creditors	60,000	Petty Expenses paid by Branch	80,000
Goods sent to Branch (at Cost)	52,20,000	Remittance to Branch for expenses:
Goods returned by Branch to H.O (at cost)	78,000	Salaries	3,00,000
Goods returned by Customers to Branch	57,000	Rent and Insurance	1,20,000
Cash received by Branch from its Customers	61,10,000	Petty Cash	78,700

Additional information:

1. Goods are sold to customers at cost plus 50%.

2. Depreciate the furniture @ 10% p.a.

3. Goods returned by Branch Customers directly to H.O. Rs 12,000

4. Cash remitted by Branch Customers directly to H.O. Rs 2,80,000

Solution:

In the books of Head Office

Delhi Branch Account

Particulars	Rs	Particulars	Rs	Rs
To Balance b/d		By Balance b/d
Stock	17,80,000	Creditors		60,000
Debtors	1,40,000	By Bank (Remittance by Br)
Petty Cash	2,500	Cash sales	3,20,000
Furniture	60,000	Collection from debtors	61,10,000	64,30,000
To Goods sent to Branch	52,20,000	By Bank (Remittance by Drs)		2,80,000
To Bank (Remittance to Br)		By Goods sent to Branch (Return by Branch to HO)		78,000
Salaries	3,00,000	By Goods sent to Branch (Return by Branch Debtors to HO) [12,000 × ²/₃]		8,000
Rent and Insurance	1,20,000	By Balance c/d
Petty Cash	78,700	Stock – W.N. 1		18,84,000
To Balance c/d		Debtors – W.N. 2		9,60,000
Creditors	60,000	Petty Cash – W.N. 3		1,200
To General P/L (Br. N/P)	19,94,000	Furniture – W.N. 4		54,000
	97,55,200			97,55,200

Working notes:

1. Memorandum Branch Stock Account

Particulars	Rs	Particulars	Rs
To Opening stock	17,80,000	By Sales (at cost) [(72,94,000 + 3,20,000) × ²/₃]	50,76,000
To Goods sent to branch	52,20,000	By Goods sent to branch (Return by Branch to HO)	78,000
To Branch Debtors (Return by Branch Debtors to Branch at cost) [57,000 × ²/₃]	38,000	By Closing stock (b/f)	18,84,000
	70,38,000		70,38,000

2. Memorandum Branch Debtors Account

Particulars	Rs	Particulars	Rs
To Opening debtors	1,40,000	By Collection from debtors (Remitted by Branch)	61,10,000
To Credit sales	72,94,000	By Collection from debtor (Remitted by Branch Debtors)	2,80,000
		By Goods returned by Branch Debtors to Branch	57,000
		By Goods returned by Branch Debtors to HO	12,000
		By Bad debts	10,000
		By Discount allowed	5,000
		By Closing debtors (b/f)	9,60,000
	74,34,000		74,34,000

3. Petty cash balance as on 31.3.2013:

Particulars	Rs
Opening balance of petty cash	2,500
ADD: Cash received from HO for petty expenses	78,700
	81,200
LESS: Petty expenses paid by Branch	(80,000)
Closing balance of petty cash	1,200

4. Value of furniture as on 31.3.2013:

Particulars	Rs
Opening balance of furniture	60,000
LESS: Depreciation (Rs 60,000 × 10%)	(6,000)
Closing balance of furniture	54,000

Illustration: 4

Prepare a Branch account in the books of Head Office from the following particulars for the year ended 31^st March, 2013 assuming that H.O. sold goods at cost price 25%.

Particulars	Rs	Particulars	Rs
Stock on 1.4.2012 (I.P.)	12,500	Bad Debts	2,000
Debtors (....)	5,000	Allowances to customers	1,000
Petty Cash (....)	1,000	Returns Inwards	1,000
Goods sent to branch (I.P.)	40,000	Charges sent to Bank:
Goods return to H.O. (I.P.)	5,000	Rates & Taxes	3,000
Cash Sales	12,000	Salaries	8,000
Cash received from Debtors	30,000	Misc. Expenses	1,000
		Stock on 31.03.2013 (I.P.)	15,000
		Debtors (....)	4,000
		Petty Cash (....)	1,000

Solution:

In the books of Head Office

Branch Account

Particulars	Rs	Rs	Particulars	Rs	Rs
To Balance b/d			By Bank (Remittance)
Stock	12,500		Cash sales	12,000
Debtors	5,000		Collection from Drs.	30,000	42,000
Petty cash	1,000	18,500	By Goods sent to branch(Goods returned by Branch to HO)		5,000
To Goods sent to branch		40,000	By Stock reserve (Loading on Op. stock) [12,500 × ¹/₅]		2,500
To Bank (Remittance)			By Goods sent to branch (Loading on net goods Sent) [(40,000 – 5,000)×¹/₅]		7,000
Rates and taxes	3,000		By Balance c/d
Salaries	8,000		Stock	15,000
Misc. Expenses	1,000	12,000	Debtors	4,000
To Stock reserve (Loading on Cl. stock) [15,000 × ¹/₅]		3,000	Petty cash	1,000	20,000
To General P/L A/c (Br. N/P transferred)		3,000
		76,500			76,500

Illustration: 5

Multichained Stores Ltd. Delhi has its branches at Lucknow and Chennai. It charges goods to its Branches at cost plus 25%. Following information is available of the transactions of the Lucknow Branch for the year ended on 31^st March 2013:

Particulars	Rs
Balances on 01.04.2012:
Stock (at invoice price)	30,000
Debtors	10,000
Petty Cash	50
Transactions during 2012-13 (Lucknow Branch):
Goods send to Lucknow Branch (at invoice price)	3,25,000
Goods returned to Head Office (at invoice price)	10,000
Cash Sales	1,00,000
Credit Sales	1,75,000
Goods pilfered (at invoice price)	2,000
Goods lost by fire (at invoice price)	5,000
Insurance Co. paid to H.O. for loss by fire at Lucknow	3,000
Cash sent for petty expenses	34,000
Bad debts at Branch	500
Goods transferred to Chennai Branch under H.O. advice	15,000
Insurance charges paid by H.O.	500
Goods returned by Debtors	500
Balance on 31.03.2013:
Petty Cash	230
Debtors	14,000

Goods worth Rs 15,000, sent by Lucknow Branch to Chennai Branch, were in-transit on 31.03.2013.

Show the following accounts in the books of Multichained Stores Ltd.: (a) Lucknow Branch Stock Account; (b) Lucknow Branch Debtors Account; (c) Lucknow Branch Adjustment Account; (d) Lucknow Branch Profit & Loss Account, and (e) Stock Reserve Account.

Solution:

In the books of Multichained Stores Limited (HO)

Lucknow Branch Stock Account

Particulars	Rs	Particulars	Rs
To Balance b/d	30,000	By Bank A/c (Cash sales)	1,00,000
To Goods sent to Branch A/c	3,25,000	By Branch Drs. (Credit sales)	1,75,000
To Branch Debtors A/c (Goods returned by Debtors)	500	By Goods sent to Branch A/c (Goods returned by Br. to HO)	10,000
		By Chennai Branch A/c (Goods transferred)	15,000
		By Abnormal loss by fire A/c	5,000
		By Pilferage A/c	2,000
		By Balance c/d (b/f)	48,500
	3,55,500		3,55,500

Lucknow Branch Debtors Account

Particulars	Rs	Particulars	Rs
To Balance b/d	10,000	By Bad Debts A/c	500
To Branch stock A/c (Credit sales)	1,75,000	By Bank (Collection from Drs)- b/f	1,70,000
		By Branch stock A/c (Goods returned by Debtors)	500
		By Balance c/d	14,000
	1,85,000		1,85,000

Lucknow Branch Adjustment Account

Particulars	Rs	Particulars	Rs
To Stock reserve A/c (Loading on closing stock) [48,500 × ¹/₅]	9,700	By Stock reserve A/c (Loading on opening stock) [30,000 × ¹/₅]	6,000
To Chennai Branch A/c (Loading on goods transferred) [15,000 × ¹/₅]	3,000	By Goods sent to Branch A/c (Loading on net goods sent) [(3,25,000 – 10,000) × ¹/₅]	63,000
To Abnormal loss by fire A/c (Loading) [5,000 × ¹/₅]	1,000
To Pilferage A/c (Loading) [2,000 × ¹/₅]	400
To Branch P/L A/c (Gross profit transferred)	54,900
	69,000		69,000

Lucknow Branch P/L Account

Particulars	Rs	Particulars	Rs
To Abnormal loss by fire A/c (Cost less insurance claims)	1,000	By Branch Adjustment A/c (Gross Profit)	54,900
To Pilferage A/c (Cost)	1,600
To ‘Bad debts’	500
To Insurance	500
To Petty expenses (50 + 34,000 – 230)	33,820
To General P/L A/c (Branch N/P transferred)	17,480
	54,900		54,900

Abnormal loss by fire A/c

Particulars	Rs	Particulars	Rs
To Lucknow Branch Stock A/c	5,000	By Lucknow Br. Adjustment A/c	1,000
		By Bank A/c (Insurance claims)	3,000
		By Branch P/L A/c (b/f)	1,000
	5,000		5,000

Stock Reserve A/c

Particulars	Rs	Particulars	Rs
To Lucknow Br. Adjustment A/c	6,000	By Balance b/d	6,000
To Balance c/d	9,700	By Lucknow Br. Adjustment A/c	9,700
	15,700		15,700

Illustration: 6

The P. T. Co. Ltd. Invoices goods to its Kanpur branch at cost plus 25%. Both cash and credit sales are affected by the branch at these prices. Branch expenses are paid direct from the Head Office, all cash received by the branch being remitted to Head Office.

The following are the details of the transactions for the year ended 31.12.2019:

Particulars	Rs
Goods received from head office at invoice price	2,00,000
Returns to head office at invoice price	5,000
Stock at branch as on 1.1.2019	50,000
Credit sales	1,10,000
Cash sales	1,08,000
Debtors as on 1.1.2019	38,000
Cash received from debtors	1,16,000
Discounts allowed to customers	1,600
Bad debts written-off	3,000
Returns from customers (Returns by branch debtors to branch)	2,000
Rent, rates and taxes	2,400
Salaries and wages	8,000
Sundry expenses	1,200

Prepare in the books of the head office:

i. Branch Stock Account,

ii. Branch Debtors’ Account,

iii. Branch Adjustment Account, and

iv. Branch Profit and Loss Account.

Solution:

In the books of P. T. Co. Ltd. (HO)

Branch Stock Account

Particulars	Rs	Particulars	Rs
To Balance b/d	50,000	By Branch debtors (credit sales)	1,10,000
To Goods sent to branch	2,00,000	By Bank (cash sales)	1,08,000
To Branch debtors (goods returned by Br. Drs. to Br.)	2,000	By Goods sent to branch (goods returned to H.O. by Br.)	5,000
		By Balance c/d	29,000
	2,52,000		2,52,000

Branch Debtors’ Account

Particulars	Rs	Particulars	Rs
To Balance b/d	38,000	By Bank (collection from debtors)	1,16,000
To Branch stock (credit sales)	1,10,000	By Discount allowed	1,600
		By Bad debts	3,000
		By Branch stock (goods returned by Br. Drs. to branch)	2,000
		By Balance c/d	25,400
	1,48,000		1,48,000

Branch Adjustment Account

Particulars	Rs	Particulars	Rs
To Stock reserve (loading on Cl. stock) [29,000 × 1/5]	5,800	By Stock reserve (loading on Op. stock) [50,000 × 1/5]	10,000
To Branch P/L Account [B/F]	43,200	By Goods sent to branch (loading on net goods sent to branch) [(2,00,000 – 5,000) × 1/5]	39,000
	49,000		49,000

Branch Profit and Loss Account

Particulars	Rs	Particulars	Rs
To Salaries and wages	8,000	By Branch adjustment	43,200
To Rent, rates and taxes	2,400
To ‘Bad debts’	3,000
To Discount allowed	1,600
To Sundry expenses	1,200
To General P/L Account [B/F]	27,000
	43,200		43,200

Illustration: 7

B. B. Company Limited with their head office in Kolkata, invoiced goods to their Bangalore branch at 20% less than list price, which is cost plus 100% with instruction that cash sales are to be made at invoice price and a credit sales at list price. From the following particulars, prepare for the year ended 31.12.2019:

i. Branch Stock Account,

ii. Branch Adjustment Account,

iii. Branch Profit and Loss Account, and

iv. Branch Debtors’ Account

Particulars	Rs
Stock on 1.1.2019 (at invoice price)	24,000
Debtors on 1.1.2019	20.000
Goods received from head office (at invoice price)	2,64,000
Goods returned to head office (at invoice price)	2,000
Cash sales	92,000
Credit sales	2,00,000
Cash received from debtors	1,71,268
Expenses at branch	34,732
Remittance to head office	2,40,000
Debtors on 31.12.2019	48,732
Stock on 31.12.2019 (at invoice price)	85,200

Solution:

In the books of B. B. Company Limited (HO)

Branch Stock Account

Particulars	Rs	Particulars	Rs
To Balance b/d	24,000	By Branch debtors (credit sales)	2,00,000
To Goods sent to branch	2,64,000	By Bank (cash sales)	92,000
To Surplus (B/F)	51,200	By Goods sent to branch (goods returned by Br. to H.O)	2,000
To Branch adjustment [W.N.-2]	40,000	By Balance c/d	85,200
	3,79,200		3,79,200

Branch Debtors’ Account

Particulars	Rs	Particulars	Rs
To Balance b/d	20,000	By Bank (collection from debtors)	1,71,268
To Branch stock(credit sales)	2,00,000	By Balance c/d	48,732
	2,20,000		2,20,000

Branch Adjustment Account

Particulars	Rs	Particulars	Rs
To Stock reserve (loading on Cl. Stock) [85,200 × 60/160]	31,950	By Stock reserve (loading on Op. Stock) [24,000 × 60/160]	9,000
To Branch P/L Account [B/F]	1,34,500	By Goods sent to branch (loading on net goods sent to Br.) [(2,64,000 – 2,000) × 60/160]	98,250
		By Branch stock	40,000
		By Branch stock (loading on surplus) [51,200 × 60/160]	19,200
	1,66,450		1,66,450

Branch Profit and Loss Account

Particulars	Rs	Particulars	Rs
To Branch expenses	34,732	By Branch adjustment	1,34,500
To General P/L Account [B/F]	1,31,768	By Branch stock (cost of surplus) [51,200 × 100/160]	32,000
	1,66,500		1,66,500

Working notes:

1. Computation of loading percentage

Let Cost price	= Rs 100
∴ List price	= Rs 100 + 100% of Rs 100 = Rs 200
∴ Invoice price	= Rs 200 – 20% of Rs 200 = Rs 160
∴ Loading	= [(160 – 100) ÷ 160] of Invoice Price
⇒ Loading	= 60/160 of Invoice Price
⇒ Loading	= 60/160 × 100% = 37.5% of Invoice Price

2. Adjustment for credit sale

Particulars	Rs
Total credit sales	2,00,000
LESS: Invoice price of credit sales [2,00,000 × 160/200]	1,60,000
Adjustment for credit sales	40,000

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Branch Accounting for Dependent Branches

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