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TOPIC 9 BRANCH ACCOUNTING – ACCOUNTANCY

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ACCOUNTANCY FULL NOTES FORM 5 AND 6 TOPIC 9 BRANCH ACCOUNTING - ACCOUNTANCY TOPIC 8 INVESTMENT ACCOUNT - ACCOUNTANCY TOPIC 7 FINANCIAL STATEMENTS ANALYSIS AND INTERPRETATION DEPRECIATION AND DISPOSAL OF FIXED ASSETS RESERVES AND PROVISIONS CORRECTION OF ACCOUNTING ERRORS NATURE AND CONTEXT OF ACCOUNTING

TOPIC 9 BRANCH ACCOUNTING – ACCOUNTANCY

BRANCH ACCOUNTING

Is an accounting system in which separate accounts are maintained for each branch of a corporate entity or organization the primary objectives of branch accounting are better accountability and control, since portability and efficiency can be closely tracked at the branch level.

Branch accounting may involve added experience for an organization in terms of accounting and infrastructure.

This is because it may be necessary to appoint branch accountant to insure accurate financial reporting and compliance with head office procedure and process.

Aim of branch

i. To find out profit or loss generated by each branch (profit ascertainment at each branch).

ii. To check up the movement of goods and cash flow to and from the branch. (To ensure strict control is institute at the branch to prevent wastage of resources).

iii. To ascertain the financial position of each branch on a particular date.

iv. To know the cash and goods requirements of each branch.

There are two types of Branches

  1. Dependent Branches
  2. Independent Branches

What is Dependent Branches is the branch which does not maintain its own set of books of accounts. All records have to be maintained by head office or head quarter.

Dependent branches has divided into two branches, which are

  1. Home branches
  2. Foreign branches

FEATURES OF DEPENDENT BRANCH.

1. It does not maintain its own set of books. The head office maintains all records transactions.

2. Generally all books goods are supplied to the branch by head office

3. All extenders are supplied

4. Cash received by the banks from his debtors are remitted to the head office.

ADVANTAGES OF BRANCH ACCOUNT

1. Reduce burden of the head office

2. High degree of sales

3. Less cost of operating.

Systems of Accounting
  • Debtors system
  • Stock and debtors system
  • Final account system

DEPENDENT BRANCHES

1. Dependent branches is where branches don’t keep complete account

2. Such branches have limited power for their operations i.e this branches do not keep complete account as per double entry .

3. Usually, such branches keep cash book, customers account and stock register therefore trial balance cannot be prepared in the books of the branch.

4. The head office has overall control over accounts such branch has following characteristics.

5. Branches set goods supplied by the head office. Under special circumstances only, a branch is allowed to purchase from the market.

6. All cash received by the branch is remitted to the head office

7. The head office remits cash for branch expenses. However a branch may be allowed to keep some petty cash balance

8. All accounts of branch assets such as furniture, premises e.t.c are maintained in head office books.

9. A branch keeps memorandum records of its transactions hence, trial balance n books of branch cannot be maintained or prepared

10. Goods are supplied by head office to branch either and cost price or above cost

 N.B:

Head office will maintain separate record for the transaction related, to each branch so that profit or loss calculated

Account in the books of the head office may be maintained according to any of the following records to such branches
.Debtors methods
.Bank

Debtors methods

Under this method, the branch account is prepared in the books of H/O to ascertain profit or loss of each bank

  • The nature of branch account is that of nominal account
  • In branch a/c all transactions between H.O and in branch are shown
  • Balance in branch a/c represents profit or loss of the branch. As debtors.
The following are the journal entries

1. For opening balances of assets or branch (induct ally)

Dr. Branch a/c

CR: Assets/Branch assets

2. For goods sent to branch

DR. Branch a/c

CR: Goods sent to branch a/c

1. For   cash remitted by head office

Dr: Branch a/c

CR: Cash a/c

2.For goods returned by branch to head office

DR. Goods sent to branch a/c

CR. Branch a/c

3. For goods returned by debtors directly to H.O

Dr. Goods sent to branch a/c

Cr. Branch a/c

4. For cash received from branch

Dr. Cash

CR: Branch a/c

5. For closing balances of branch assets

DR: Branch assets a/c (separately)

CR: Branch a/c

6. For closing balances of branch liabilities

DR: Branch a/c

CR: Branch liabilities

7. For credit of balance of branch a/c being profit

DR: Branch a/c (Profit and profit a/c)

CR: Trading a/c purchases a/c

ILLUSTRATION (1)

F LTD opened a branch in 2009 at Dodoma the figure for 2009 are given below

  • Cash sent to branch or expenses                      35,000
  • Stock on 31st Dec 2009                                   40,000
  • Sundry debtor 31st Dec. 2009                          17,000
  • Goods sent to branch                                     250,000
  • Sales   (cash)                                                100,000

(Credit)                                             180,000

  • Cash received form debtor                             160,000

Give journal entries and ledger a/c for 2009

DR   BRANCH ACCOUNT   CR

Cash 35,000 Cash 35,000
GOODS SENT TO BRANCH 250,000 Credit sales 100,000
Collection from debtor 180,000
Closing balance 160,000
Stock 40,000
Sundry debtors 17,000
212,000
497,000 497,000

JOURNAL ENTRIES

DETAILS DEBIT CREDIT
Dodoma branch a/c 250,000
Goods sent to branch a/c 250,000
Beinggoods sent to Dodoma branch
Dodoma branch a/c 35,000 35,000
Cash/Bank 35,000
Being cash sent to Dodoma branch
Bank / Bank 260,000
Dodoma branch a/c 260,000
Being cash collected from debtors
Stock 40,000
Debtor 17,000
Dodoma branch a/c 57,000
ILLUSTRATION 1

Dar Es Salaam had a branch at Dodoma Goods sent by head office at invoice price which is at price of 20% on invoice price. All expenses price which is at price of 20% on invoice price. All expenses of the branch are paid by the head office (H.O) Particular

Opening balances:

Stock at invoice price                                  11,000

Debtors                                                     17,000

Petty cash                                                      100

Cash sent to branch at invoice price             20,000

Expenses made by the H.O                              600

Rent                                                               200

Salaries and other expenses                             900

Remittance made to H.O

Cash sales                                                   2,650

Cash collected from debtors                        21,000

Goods returned by branch at invoice price        400

Balance at the end

Stock at invoice price                                 13,000

Debtors at the end                                       2,000

Petty cash                                                        25

From the book of Head office draw up Branch a/c

ILLUSTRATION 2

The Balance LTD in Arusha is having a branch at Tanga. Goods are invoiced to the branch at 20%. Branch has been instructed to send all cash daily to the head office. All expenses are paid by Head office except petty cash expenses which are made by Branch manager.

From the following details prepare branch a/c in the book of B. B trace Ltd

Stock 1st Jan 1995 (choice price)                                      15,000

Sundry debtors Jan 1995                                                   9,000

Cash in hand 1st Jan 1995                                                    400

Office furniture 1st Jan 1995                                              1,200

Goods invoiced from the H.O at invoiced price was             80,000

Goods returned to the H.O was                                          1,000

Goods returned by debtors amount was                            30,000

Cash sales                                                                      50,000

Credit sales                                                                    30,000

Discount allowed to debtors                                                 300

Expenses made by H.O

Rent                                                                               1,200

Salaries                                                                           2,400

Stationary and painting                                                        300

Petty expenses paid by branch manager

Stock at 31st December 1995 (choice price)                      14,000

Depreciation is to be provided in Branch furniture at 105 pc.

You are required to draw up Tanga a/c in the book of B. furniture
When goods are sent or inserted to the branch at a higher than price cost (sent goods to invoice price) When the goods are sent by the head office to the branch at sale or invoice price that is cost + same percentage of profit the branch manager is required to sell the goods at invoice price only otherwise it is a allowed by H.O to sell at either higher or lower than invoice price.

Head office will maintain branch accounting in the same line as in previous discussion but the entry relating to goods, sent to branch, goods returned by branch to H.O closing and opening stock at the branch will be at invoice price and in order to complete the P/L of the branch.

See also  QUESTIONS WITH ANSWERS ON NOVELS

The following adjustment entry will have to be passed in the Head Office, closing and opening stock at the branch will be at invoice price and in order to complete the P/L of the branch.

1. For adjustment of excess price of the opened stock of branch
DR: Stock reserve a/c
CR: Branch A/c

2. For adjustment of excess price of goods sent to branch less returned to H.O

DR: Goods sent to branch a/c
CR: Branch a/c

With the profit loaded Always closing stock should be valued at cost or market price whichever is lower (according to prudence (stock valuation) this is based on principle of conservation (prudence) i.e.

Asset should not be overvalued means no profit should be anticipated and loss should be provide furthermore, the unsold stock lay in the branch will not earn any profit unless sold. For the adjustment of excess price unsold goods at branch

DR: Branch A/c
CR: Stock Reserve a/c

Working the illustration 1.

For adjustment of excess price of goods sent to branch, less with goods returned by branch to H.O.

Goods sent to branch                       20,000

Less Goods returned to H.O                400

19600 X20/100= 3920

  • For adjustment of opening stock of the branch

11,000 x 20/100 = 2200 (stock reserve)

  • For adjustment of excess price of closing stock of the branch:

13,000 x 20/100 = 2600   (stock reserve)

 DR   DODOMA BRANCH OF NSTU IN DSM  CR

Opening balance Stock reserve on opening 2200
Stock 11,000
Debtors 1700 CASH REMITTANCES
Petty cash 100 Cash sales 2650
Cash collected from debtor 21000
Goods sent to branch 20,000 Goods returned by branch 400
Goods sent to branch (profit loaded) 3920
EXPENSES OF BRANCH
Rent 600
Wages 200 CLOSING BALANCE
Salaries 900 Stock 13000
Debtors 2000
Stock reserve (losing stock)
2600 Petty cash 25
Profit (P+L) 8095
45195 45195

While preparing branch a/c care should be taken with respect to the following items.

Credit sales, sales return, bad debts, discount allowed

These items are not shown in branch a/c

Net effects of these items is automatically given directly in branch a/c by showing opening balance, debtors, cash received from debtors a/c and closing balance from debtors however these items will be and closing balances from debtors however these items will be used for preparing memorandum branch debtors a/c.

Depreciation of fixed assets

This is also not showed in branch a/c, i.e when open and closing balance of fixed assets are shown, the effects of depreciation is automatically there.

Loss of stock and Surplus of Stock

This is also not showed in branch a/c but amount of claim if any is credited in branch a/c

Expenses incurred by branch

Expenses actually paid by the branch are not shown in branch a/c but amount remitted by H.O to branch for remitting expenses is debited to branch a/c

If actual amount spent by branch is less, the cash balance is shown as a part of closing balances of branch asset in the credit side of the branch a/c

If opening balance of branch cash is 100/= cash remitted by Head office to branch is 6000/= and closing balance of branch with cash is 500.

DR  BRANCH   A/C     CR

Opening balance                  1000               Closing balance        500

Cash remitted                      6000

STOCK AND DEBTORS SYSTEM /METHODS

Under this system account related to branch are maintained in a more comprehensive and detailed manner as compared to debtors system.

Under this system separate a/c are prepared for various accounting function.

The accounting procedures under this system depends upon policy of the H.O will regards to pricing of goods sent to branch.

Therefore. H/O adopts one at the following methods /systems for invoicing goods.

  1. At cost to H/O
  2. At selling price of the branch.
  3. At cost price + fixed margin of profit.

In this case, branch may sell goods at higher or lower than the invoice price.

The accounting procedures under this above three situations are as follows

1. Branch stock A/c

2. Goods sent to branch A/c

3. Branch debtors A/c

4. Branch expenses A/c

5. Branch profit and loss A/c

6. Branch cash A/c

ACCOUNTING ENTRIES

-When goods are sent to the branch

DR: Branch stock A/c
CR: Goods sent to branch A/c

-If goods are returned by branch

DR. Goods sent
CR. Branch stock ac

If goods are returned by customs

DR: Branch expenses a/c
CR: Cash

When cash sales are made at the branch

DR: Cash

CR: Branch stock A/c

-When sales on credit

DR: Branch debtor’s a/c
CR: Branch sock a/c

-When cash is received on a/c of debtors

DR: Branch expenses A/c

CR: Branch stock A/c

-For loss of stock

DR: Branch (P+L) A/c

CR: Branch (P+L) A/c

-For balance of branch stock A/c (gross profit)

DR: Branch stock

CR: Branch expenses A/c

-For balance of goods sent to branch a/c

DR: Goods sent to branch A/c
CR: Trading A/c

-For cash remitted by branch to H/O
DR: Cash A/c
CR: Branch Cash A/c

-For net profit as per branch
DR: Branch (P+L) A/c
CR: General P+L A/c

 ILLUSTRATION 1

Stock of branch of (January 1.2002)                               7,560

Goods from H/O                                                          35,500

Total sales                                                                  46,760

Cash sales                                                                  16,750

Goods returned to H/O                                                     350

Stock at branch (31.12.2001)                                        6,950

Debtors on (1.1.2002                                                  13,000

Cash paid by customer                                                24,600

Discounts and commission to customers                         1,360

Bad debts                                                                       300

Rents, Rates & Taxes                                                       900

Salaries & wages                                                          3,650

Goods returned by customers                                           300 

NOTES: J&S trading invoices goods to Chamwino branch at cost which sales on credit as well as on cash.

From information given prepare;

1. Branch stock a/c
2. Branch debtors a/c
3. Branch expenses a/c

NOTE: Cash is immediately remitted branch top H/O expenses are paid directly by H/0

1. Journal entry.
2. Relevant ledgers.

DR   BRANCH   DEBTORS A/C   CR

Balance     b/f 13,000 Cash 24,600
Credit sales 30,010 Bad debts 300
Discount Allowed 1,360
Balance c/d 16,750
43,010 43,010

DR  BRANCH DEBTORS A/C  CR

Balb/f 13,000 Cash paid 24,600
Credit sales 30,000 Bad debts 300
Discount allowed 1360
Goods returned by customers 300
P&L 16,450
43,010 43,010

 DR  BRANCH STOCK A/C                                                                          CR

Branch_Stock1

DR   BRANCH     EXPENSES     A/C  CR

Discount & commission 1350 P .& L 6210
Bad debts 300
Rent &rates and taxes 900
salaries and wages 3650
 6210  6210
The following important Aspects

NOTE

1. Stock and debtors system, when goods have been invoiced to branch at selling price.

2. In this case, values of opening stock, goods sent to branch goods returned by branch stock a/c since invoice price and sales price are the same.

3. Closing balance of the stock a/c will represent value of closing stock at invoice price and if value of opening stock, goods sent to branch, sales and closing  stock are given and after showing the value of closing stock as given, then there is some difference in branch stock a/c, it will represent either shortage or surplus of stock.

4. Accounting Records When goods are invoiced to branch at price above cost an additional account known as branch stock adjustment a/c is prepared. In this a/c  the difference  between invoice price and cost of opening stock, goods sent to branch, goods returned by branch closing stock, shortage  of  stock and surplus of stock are shown. Balance of this a/c represents gross profit. This is transferred to branch profit and loss a/c.

Accounting entries on Branch stock Adjustment.

For correcting loading on goods sent;
DR: Goods sent to branch a/c
CR: Branch adjustment a/c

For least price that is invoice price difference of credit sales;
DR: Branch stock a/c
CR: Branch adjustment a/c

For the adjustment of inflated price of the opening stock;
DR: Stock reserve
CR: Branch adjustment a/c

See also  INTRODUCTION AND BASIC CONCEPTS OF LITERATURE

For the adjustment of loading on goods returned;
DR: Branch adjustment a/c
CR: Goods sent to branch a/c
For the adjustment of inflated price of the closing stock;
DR: Branch adjustment
CR: Branch expenses

Finally, from transferring profile from branch adjustment a/c to general profit and loss (P&L);
DR: Branch adjustment a/c
CR: General (P&L) A/C

From transferring loss from branch adjustment a/c to general P&L;
DR: General (P&L) A/C
CR: Branch adjustment a/c

Example.

On 1st JANUARY 2008 the goods invoiced by Shinyanga trader to its Tabora branch were Tshs 48,000 at selling price, being 331/3 % on cost price. For six month ending 30th June 2008 the branch returned showed that the sales was Tshs 24,000.

The goods invoiced at Tshs 2000 were returned by the branch to H/O. The closing stock at Tabora branch (2008) was Tshs 16, 800 at selling price. Prepare various a/c under stock and debtors system.

DR TABORA     BRANCH     STOCK     A/C  CR

Goods sent to branch 48,000 sales  24,000
Goods returned by branch 2,000
shortage on stock 5,200
 balance   c/d 16,800
 48,000 48,000
 balance   c/d  16,800

DR  GOODS SENT TO BRANCH         A/C                                                 CR

Branch adjustment 12,000 stock 48,000
Trading 36,000
 48,000  48,000

DR   BRANCH STOCK ADJUSTMENT A/C  CR

Branch_Stock_Adjustment

EXERCISES   

1. C’ Company Ltd opened a shop at dare s salaam at 1st January 2004, goods were invoiced at selling price which was fixed by adding 25% to the cost. From the following particular related to 2004 and 2005. Ascertain profit or loss made in two years by the stock and debtors system. Goods sent to.
2004                            2005

Goods sent, Branch (invoice per value)           140,400                       265,200

Credit sales                                                   50,000                       160,000

Cash received from debtors                            62,400                       151,400

Discount Allowed to customs                            1,600                           2,600

Goods returned by customers                           2,000                           1,500

Rent                                                               1,200                           1,500

Salaries                                                          6,000                           8,000

Sundry expenses                                                800                           1,000

Defective clothes, found in sales w/0 (at invoice price)                              200

Branch stock at Branch 31st Dec                                                           47,800

NOTE:

-In branch stock a/c if the entire figure is entered at cost price no need for stock reserve.
-If goods are returned from debtors, to branch, no loading on goods sent.

Required;-

-Open relevant ledger account.

2.Company sent goods to B. Branch at cost price 25% you are given the following

particulars

Opening stock at branch at cost                                                 5,000

Goods sent to branch at invoice price                                       20,000

Loss in transit at invoice price                                                    2,500

Theft at invoice price                                                                 1,000

Loss in weight (normal) at invoice price                                         500

Sales                                                                                      25,500

Expenses                                                                                  8,000

Closing stock at branch at cost                                                    6,000

Claim receipt from insurance company for loss in transits              2,000

You are required to prepare in the head office

1. Branch stock a/c
2. Branch adjustment a/c
3. Branch profit and loss a/c

-Show all workings.

SOLUTION (For Exercise 2)

   DR   BRANCH     STOCK   A/C   CR

Opening stock   6,250 sales branch debtors  25,500
Goods sent to branch 20,000 loss In transit    2,500
Profit over invoice price 10,750 loss by theft    1,000
loss in weight       500
Balance   c/d    7,500
 37,000  37,000

 DR   BRANCH   STOCK   ADJUSTMENT   A/C  CR

Loss in transit (loading)    500 stock reserve (opening) 1,250
loss in weight(normal)    100 Goods sent to branch 4,000
loss by theft (loading)    200 branch stock 10,750
Gross profit 1,500
Stock reserve (closing   stock) 13,700
16,000                                                         16,000

 DR   BRANCH PROFIT AND LOSS A/C   CR

Expense  8,000 Branch  stock adjustment 13,700
loss in transit  2,000 Insurance claim   2,000
loss by theft     800
loss in weight     400
Net profit   4,500
15,700                                                                                 15,700

NOTE:

-In this case closing stock is given at cost to branch that is at invoice price.

-Invoice price and sales are not the same there for balance of branch stock a/c  represent excess of sales over invoice price.

METHOD 2:

   DR   BRANCH STOCK      A/C    CR      

DETAILS MEMO COST DETAILS MEMO COST
Balance   b/d   6,500 5,000 branch debtors 25,500 25,500
Goods sent to branch 20,000 16,000 loss in transit 2,500 2,000
profit over invoice 10,750 loss in weight 500 400
Gross profit 13,700 loss by theft 1,000 800
balance c/d 7,500 6,000
37,000 34,700 37,000 34,700
 Balance b/d 7,500 6,000
 DR PROFIT OR LOSS ACCOUNT CR
Branch expenses 8,000 Gross profit b/d 13,700
loss by theft    800 Insurance claim  2,000
loss in transit 2,000
loss in weight    400
Net profit 4,500
 15,700  15,700
ILLUSTRATION

A branch sells all his goods at uniform mark up of 50% profit on cost price. Credit customers are to pay their accounts director to the head office.
1st January 20 x 9 -stock at cost                         2,000

– Debtors                                 400

During the year ended 31st 12. 20 x 9 Goods sent to branch at cost 7000
Sales cash          6,000

Credit          4,800

Cash remitted by debtors to head office Tshs 4,500

As at 31 Dec 20 x 9 stock at cost Tsh 1,800, debtors Tsh 700

Draw up            i) Branch stock a/c

ii)Branch debtors a/c

iii) Branch goods sent to

iv)Branch adjustment a/c

 DR   BRANCH STOCK A/C   CR

DETAILS
MEMO
COST
DETAILS
MEMO
COST
Balance     b/d 3,000 2,000 sales: cash 6,000 6,000
Goods sent to branch 10,500 7,000           credit 4,800 4,800
Gross profit 3,600 Balance c/d 2,700 1,800
13,500 12,600 13,500 12,600
balance b/d 27,00  18,00

 Workings

2000 X 50% = 1000 + 2000 = 3000

7000 X 50%=3500 +7000 = 10500

1800 X 50 % = 900 + 1800 = 2700

DR  BRANCH DEBTORS A/C CR

balance   b/d    400 cash  4,500
branch stock 4,800 Balance     c/d     700
5,200  5,200
 Balance b/d  700

 DR  GOODS   SENT   TO   BRANCH   A/C  CR

Adjustment 3500 Branch stock 10,500
Trading 7000
 10,500  10,500

DR   B.S.   ADJUSTMENT   A/C  CR

Gross profit 3,600 Balance   b/d  1,000
Balance   c/d    900 Goods sent  3,500
4,500  4,500
EXERCISE   3

Osha limited whom head office is at chamazi operates a branch at Swahili street. All goods are purchased by head are invoiced to and sold by the branch at cost plus  33 1/3%. Further than the sales. Ledge kept at Swahili, all of the transactions of the branch during the year ended 28th Feb.

Stock on hand 1st March 2006 at invoice price ……………………………… 440

Debtors on 1st March 2006 at invoice price   ………………………………. .3941

Stock on hand, 28th February 2007 at invoice price…………………………3948

Goods sent from chamazi during the year at invoice price ……………… ..2480

Sales   credit ……………………………………………………………………..21,000

Cash………………………………………………………………………..2,400

Returns to head office at invoice price………………………………………….1,000

Invoice value of goods stolen   ………………………………………………….. 600

Bad debt written off   ……………………………………………………………….148

Cash from debtors ………………………………………………………………..22,400

Normal loss at invoice price due to wastage amounted to…………………….100

Discount allowed to debtors…………………………………………………………420

Your are required to write up;-

I / The branch stock A/C

Ii/The branch debtor’s A/C

All of the a/c to be prepared is as they would appear in the head office books

Point to Note

  • Selling Price = Cost Price + Profit
  • Cost Price = Selling price – Profit

DR   BRANCH STOCK   A/C    CR

DETAILS MEMO COST DETAILS MEMO COST
Balance b/d   4,400   3,300 sales: cash   2,400    2,400
Goods sent branch 24,800 18,600          credit 21,000  21,000
P&L(Gross Profit)   5,850 Returns to H/O   1,000      750
Goods stolen      600      450
Normal loss      100        75
Damage/ wastage      152      114
Balance   c/d   3,948    2,961
29,200 27,750 29,200  27,750

4400 x 25%   = 1100

24800 x 25% = 6200

See also  FORM TWO FULL NOTES ALL SUBJECTS

3948 x 25%   = 987

DR   BRANCH   DEBTORS   A/C  CR

Balance     b/d 3,941 cash 22,400
Branch   stock 21,000 Discount allowed     428
Bad debts     148
Balance c/d   1,965
24,941  24,941


BRANCH KEEPING FULL SYSTEM OF ACCOUNT

(INDEPENDENT BRANCH A/C)

Branch keeps full books of accounts with exception of balance sheet.

Goods sent to branch is equal to purchases for the branch.

Branch prepared its own final a/c and trial balance and sends this copy to the H/O for their operations in H/O books.

A head office also maintains the branch a/c in his books

It’s also measure of the personal a/c

N: B

 (i) Goods in transit

1. In case of debtors system
DR: Goods sent to branch a/c
CR: Branch

2. In case of debtors stock system
DR: Goods sent to branch a/c
CR: Branch stock a/c

(ii)Cash in transit

1. In case of debtors system
DR: Goods sent to branch a/c
CR: Branch stock

2. In case of debtor’s stock system, treatments are the same.

(iii) Goods in transit and cash in transit will appear as an asset in the balance sheet.

1. Goods in transit added up of closing stock of an a/c
2. Goods in transit added up of closing stock of an a/c
3. Expenses incurred by branch paid by H.O

DR: Branch exp a/c
CR: Branch a/c

ILLUSTRATION (1)

The following trial balances as on 31st December 19-8 were extracted from the books

Head office Branch
Tshs Tshs Tshs Tshs
Johnson-capital 155,000
Drawings 27,500
Purchases 984,750
Cost of processing 25,250
Sales 640,000 410,000
Goods sent to/received by branch 462,000 440,000
Selling and general expenses 94,500 10,600
Debtors/creditors 154,800 300,700 56,800 5,400
Head office/branch-current Account 194,900 130,750
Balance at bank 76,000 38,750
1,557,700 1,557,700 546,150 546,150
You ascertain that:

1. Goods charges by head office to the branch in December ,19-8 at Tshs 22,000 were not received or recorded by the branch until January,19-9, and a remittance of Tsh 42,150 from the branch to head office until January,19-9.any necessary adjustments in respect of these items are to be made in the head office accounts.

2. Stock-taking at the branch disclosed a shortage of goods of a selling value of Tshs 10,000.there was no shortage or surplus at head office.

3. The cost of the stock of unprocessed goods at head office on 31st December,19-8 was Tshs 50,000.

For the purpose of the separate trading account of the head office, stocks are to be valued at cost.in the case of the separate accounts of the branch, stocks are to be valued at the price charged by head office.

Any necessary adjustments are to be made in the head office profit and loss account. You are required to prepare in columnar form for

(i) the head office

(ii)the branch, and

(iii) the business as a whole

a)      Trading and profit and loss accounts for the year ended 31st December 19-8 and,

b)      Balance sheet as on that date

SOLUTION:
Trading account and profit and loss account for the year ended 31st December, 19-8
Head office Branch Head office Branch
Purchases 984,750 sales 640,000 410,000
Less closing stock of up processed goods 50,000 Goods sent to branch(received )In transit 440,00022,000
934,750 Goods lost 8,800
Cost processing 25,250 Closing stock 28,000 70,400
960,000
Goods from head office 440,000
Gross profit c/d 140,000 49,200
1,130,000 489,200 1,130,000 489,200
Selling and general expenses 94,500 10,600 Gross profit b/d 140,000 49,200
Goods lost 8,800
Provision for unrealized :
1.on branch stock 6,400
2.goods on transit 2,000
Net profit 67,100 29,800
170,000 49,200 170,000 49,200
Balance sheet as at 31st December, 1990
Head office Branch Head office Branch
Capital 155,000 Branch current account 160,550
Add: Net profit 96,600 Current asset
251,900 Stock 28,000 70,400
Less: drawings 27,500 Stock of unprocessed goods 50,000
24,400 Goods in transit 22,000
Head office current account 160,550 Debtors 154,800 56,800
Creditors 300,700 5,400 Bank 76,000 38,750
Provisional for unrealized profit: Cash in transit 42,150  
         Stock 6,400
         Goods in transit 2,000
533,500 165,950   533,500 165,950
ILLUSTRATION 3

A is in business as a retailer in light machinery with a head office at Loliondo and  a branch at Bagamoyo. All purchases are made at the head office. Any goods sent to branch are invoiced at cost.

Branch manager is entitled  to a commission of 10% of branch net profit after charging such commission. The following trial balance was drawn up on 31st March 2012.

TRIAL BALANCE AS AT 31ST MARCH 2012
DETAILS H/OFFICE DR H/OFFICE BRANCH BRANCH
CR DR CR
Capital 100,000
Drawings 12,000
Stock 1st April 28,200  16,400
Purchases 381,300
Sales 328,100 155,900
Goods from H.O to branch 110,600 110,600
Head office/branch a/c 15,600 15,600
Debtors 37,700  17,800
Creditors 41,300
Administration expenses 33,000  6,400
Selling and distribution expenses 25,800  3,800
Motor vehicle, Net of depreciation  20,000  7,500
Furniture, Net off depreciation 10,500  3,400
Managers commission only  1,200
Cash at bank 15,900  4,400
580,000 580,000 171,500 171,500
NOTES:

1. Stock on 31 March 2012 Head office 41,400 and branch 17,580. There were no stock in transit

2. Charge 20% depreciation using reducing balance method on motor vehicle and furniture

3. Charge 30% depreciation of   H.O admin expenses (including depreciation of fixed asset to branch)

Required;-

Draw up final a/c of A for the year ended 31st March 2012 showing the profit loss made by the Head Office and branch separately and balance sheet as at that date.

DR     TRADING, PROFIT AND LOSS A/C FOR THE YEAR ENDED 31ST MARCH 2012     CR
DETAILS HEAD OFFICE BRANCH DETAILS HEAD OFFICE BRANCH
Opening stock 28,200 16,400 Sales 328,100 155,900
Add: Purchases 38,300 110,600
Good received   110,000
G.A.F.S 409,500 127,000
Less: C/stock 41,400 17,580
G.A.F.S 409,500 127,000
Less: C/stock 41,400 17,580
C.O.G.S 368,100 109,720
Gross profit c/d 70,600 46,480
438,700 155,900 438,700 155,900
Admin expenses 23100 16300 Gross profit b/d 70,600 46,480
D&D Expenses 25800 3,800
Depr: Furniture 2100 680
Depr: M. Vehicle 4000 1500
Managers com 2200
Net profit 15600 22000
70,600 46,480   70,600 46,480
FINANCIAL POSITION AS AT 31ST MARCH 2012
NON-CURRENT ASSETS
Motor vehicle 22,000
 Furniture  11,120  33,120
CURRENT ASSETS
Closing stock 58,980
Branch a/c 15,600
Debtors 55,500
Cash at bank 20,300 150,380
CURRENT   LIABILITIES
Creditors 41,300
Owing 1000
Head office a/c 15,600 -57,900  92,480
 125,600
FINANCED BY
Capital  100,000
Add: Net profit  37,600
 137,600
Less Drawings  12,000
 125,600
ILLUSTRATION ON PREPARING BRANCH CURRENT A/C AND   H/O CURRENT A/C.

P Limited as a head office In Moshi and branch at Lindi. Lindi branch maintains a full set of accounts. During March 2009 the following transactions took place between Head office and branch.

Balance on branch current a/c was                                   12560

Motor vehicle bought by Head office at cost                         2200

Goods returned by branch to head office was                        530

Cash remitted by branch to head office was                         5120

Goods Branch managers salaries paid by head office              350

Goods sent to branch…………………………………………………………..4990

Required;-

-Draw up Branch current a/c in head office books and
-Draw head office current a/c in the   ledger of the branch.

IN THE BOOKS OF HEAD OFFICE

DR   BRANCH CURRENT   A/C   CR

balance       b/d 12560 Goods returned to h/o 530
cash: motor vehicle 2200 cash remittance 5120
cash: manager’s salaries 350
Goods sent to branch 4990
20,100 balance   c/d 14,450
20,100 20,100
balance   b/d 14,450

 IN THE BOOKS OF BRANCH

DR   H/O   CURRENT   A/C   CR

Goods returned by branch 530 balance   b/d 12560
cash remittance 5120 cash: motor vehicle 2200
cash: manager’s salaries 350
balance   c/d 14,450 Goods sent to branch 4990
20,100 20,100
balance   b/d 14,450

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