Branch Accounting. Theory & Practice Exercises

Objectives of Branch Accounting

The main object of keeping branch accounts is dependent on the nature of the business and specific need of a particular branch. The objectives of keeping the branch accounts acceptable to all business are (i) To know the profit or loss of each branch separately. (ii) To ascertain the financial position of each branch on a particular date. (ii) To know the cash and goods requirements of the various branches (iv) To evaluated the progress and performance of each branch. (v) To calculate commission for payment to the managers, if based on profits of branch. (v) To know the profitability of each branch and type of business for expansion of the business. (vii) To give concrete suggestions for the improvement in the working of the various branches (viii) To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purposes.

Treatment of Certain Branch Transactions

1. Branch expenses paid by the branch out of petty cash: Such expenses will be deducted from the branch cash and at the close reduced balance of cash will be shown on the credit side of the branch account as such expenses need not be shown in the branch account.

2. Depreciation of fixed assets: This is not shown in the branch account. But the closing balance of the fixed assets will be shown on the credit side of the branch account after deduction of the amount of depreciation.

3. Credit sale, bad debts, sales returns, allowances and discount allowed pertaining to branch as these are not direct transactions between branch and head office: These items are pertaining to the debtors account and will not be shown in the branch account. However, these items will be taken into consideration while ascertaining the amount of opening or closing balance of debtors or amount received from debtors, which are shown in the branch account.

4. Goods in transit: Goods in transit is the difference between goods sent by head office and received by the branch. Such goods will be shown either on the both sides of the branch account or will be ignored totally while preparing the branch accounts.

Invoice Price Method
When the goods are sent by the head office to the branch at invoice price i.e., cost plus some percentage of profit, the branch manager is required to sell the goods at invoice price only. Goods are marked on invoice price to achieve the following objectives:
(i) In order to keep secret from the branch manager the cost price of the goods and profit made, so that the branch manager many not start a rival and competitive business with the concern; and
(ii) In order to have effective control on stock i.e, stock at any time must be equal to opening stock plus goods received from head office minus sales made at the branch.


I Debtors System

A. When goods are sent to branch at cost

1. From the following particulars relating to Delhi Branch for the year ending 31st march 2001, prepare branch account in the head office books:
Balance as on 1-4-2000 Rs Rs
Stock at the branch 15000 Credit sales during 2001-01 228000
Debtors at the branch 30000 Cheques sent to branch
Petty cash at the branch 300 during the year:
goods sent to branch during the year: 252000 for salaries 9000
Remittance from the branch for rent and taxes 1500
for cash sales 60000 For Petty cash 1100 11600
received from debtor 210000 270000 Balance as on 31-12-2001
Goods returned by the branch 2000 Stock at the Branch on 25000
Petty cash 200
Debtors 48000

2.Sincere Brothers of Delhi opened a branch at Kanpur on January 2000. From the following figures prepare kanpur Branch accounts in the book of sincere brothers for the year ending December 31, 2000&2001.
2000 2001
Goods sent to kanpure Branch 100000 120000
Expenses paid by the head office
Rent 1200 1200
Salaries 6000 6000
Advertisement 600 800
Cash sales at branch 120000 165000
Remittance received from the branch 160500
Remittance made on December 30,still in transit 4000
Expenses paid by the branch:
Carriage 200 250
Petty expenses 300 400
Stock on December 31 20000 30000
Petty cash in hand 200

B. When goods are sent to branch at invoice price

3. A head office in madras has a branch in Delhi to which goods are invoiced by the head office at cost plus 25%. All cash received by the branch is daily remitted to head office. Form the following particulars; show how the branch Account will appear in the H.O. books. Entries are to be made at invoice price

Rs
Stock on January 1,2001(at invoice Price) 62500
Debtors on 1-1-2001 60000
Goods Supplied by H.O.(at invoice Price) 200000
Cash sales 80000
Cash received from customers 147500
Goods returned to the head office(at invoice Price) 12000
Cheques received from the H.O.
Wages and Salaries 55000
Rent, Rates and Taxes 15000
Sundry Expenses 2550 72550
Stock on 31-12-2001(at invoice Price) 75000
Debtors on 31-12-2001 112500
Liability for Petty expenses 550

4. Unique shoe stores have an old established branch at Kanpur. Goods are invoiced to the branch at 20% profit on invoice price; the branch having been instructed to send all cash daily to the Head Office. All expenses are paid by the Head Office except petty expenses which are met by the branch manager. From the following the Head Office, i.e. Unique Shoe Stores:
Rs
Stock on January 1,2001(at invoice Price) 15000
Sundry Debtors on January 1,2001 9000
Cash in hand on January 1,2001 4000
Office furniture on January 1, 2001 1200
goods Supplied by Head Office (invoice Price) 80000
Goods returned to Head Office 1000
Goods returned by debtors 480
Debtors at the end 8220
Cash sales 50000
Credit sales 30000
Discount allowed 300
Expense Paid by Head Office
Rent 1200
Salary 2400
Stationery and Printing 300 3900
Petty Expenses paid by branch Manager 280
Stockon31-12-2001(invoice Price) 14000
Provide depreciation on furniture @ 10%p.a.

5. X Company has a branch at Delhi. Goods are invoiced from Head Office at cost plus 33.1/3%. Find out profit at the branch according to debtors system.
Opening balances:
Debtors 10000
Petty cash 1000
furniture 2000
Stock(I.P.) 8000
Cash send by Head Office for Petty expenses 2000
Branch expenses and losses
Freight and advertisement 5600
Bad Debts 50
Depreciation on furniture 80
Petty Expenses 1500
Sales
Cash 50000
Credit 36000
Goods Return by Debtors 800
Goods return by branch to Head Office 2000
Cash received from Debtors 20000
Stock at the end at I.P. 7800
Goods invoice by Head Office during the year 88000

6. X and co. of Delhi has a branch at Madras. Goods are sent by the head office at invoice price which is at a profit of 20% on invoice price. All expenses of the branch are paid by the head office. From the following particulars, prepare branch account in the head office books when goods are shown at invoice price:
Rs Rs
Opening balance Goods Returned by Branch at invoice price 300
Stock at invoice Price 11000 Credit sales 22800
Petty cash 100
goods sent to branch at invoice price 20000 Balance at the end:
expenses made by Head Office Stock at invoice price 13000
Rent 600 Debtors at the end 2000
Wages 200 Petty Cash(including miscellaneous income Rs. 25 not remitted) 125
Salary etc. 900 Bad debts 300
Remittances made to head office Allowances to customer 500
Cash sales 2650 Goods returned by customers 700
Cash collected from Debtors 21000

7. Jain Bros. had a branch at Calcutta. Goods are invoiced to the Branch at cost plus 25%. Branch is instructed to deposit cash every day in the head office account in the bank. All expenses are paid by the branch manager. From the following particulars, prepare branch account in the book of head office:
Rs Rs
Stock on 1-1-2001 2500 Furniture purchased by the branch manager 1200
Stock on 31-12-2001 3000 Goods invoiced from the head office 18200
Sundry Debtors on 1-1-2001 1400 Expenses paid by the head office 1640
Sundry Debtors on 31-12-2001 1800 Expenses paid by the branch 120
Cash sales for the year 10800 Head Office sent cash to purchase safe for the branch 1300
Credit sales for the year 7000
Cash remitted to the head office 15000


II Final Account system

8. A Delhi merchant has a branch at Madras to which he charges but the goods at cost plus 25%. The Madras branch keeps its own sales ledger and remits all cash received to the Head Office every day. All expenses are paid from the Head Office the Transactions for the branch during the year 1995 were as follows:
Rs Rs
Stock(1-1-2001) at I.P. 11000 Returns Inwards 500
Debtors(1-1-2001) 100 Cheques sent to branch
Petty Cash(1-1-2001) 100 Rent 600
Cash sales 2650 Wages 200
Credit sales 23950 Salary and other Expenses 900
Goods sent to branch at I.P. 20000 Stock(31-12-2001) at I.P. 13000
Collection on ledger accounts 21000 Debtors(31-12-2001) at I.P. 2000
Goods returned to H.O. at I.P. 300 Petty Cash(31-12-2001) including miscellaneous income Rs. 25
Bad Debts 300 not remitted 125
Allowances to customers 250

Prepare the branch trading and profit & loss account and Branch account for the year ending 31-12-2001

9. Mamta & Co of Hyderabad has a branch at karnool. Goods are invoiced to branches at cost plus 20%. The expenses of the branch are paid from Hyderabad. From the information supplied by the branch prepare trading & profit & loss a/c of the branch for the year ending 31-3-2001 & show the account of the branch as it would appear in the books of the head office:

Opening stock I.P 24,000
Closing stock I.P 18,000
Credit sales 41,000
Cash sales 17,500
Sundry debtors on 31-3-2001 8,500
Goods received from head office 34,000
Goods in transit from H.O as on 31-3-2001 3,500
Expenses paid by the H.O for the branch 10,000
Cash received from debtors 35,000


Independent Branches – Incorporation Enteries

10. A and CO. Limited having its head office at Delhi with branches at Lucknow and Allahabad closes its annual accounts on 31st December, when the following transactions have taken place:

(a) Remittances of Rs. 4500 made by Lucknow branch to its Head Office on 30th December, received by Head Office 5th January(next year).
(b) Goods valuing Rs. 2200 despatched by Allahabad branch on 27th December under instructions form the head office and received by the Lucknow branch on 30th December.
(c) Depreciation amounting to Rs. 1100 on Lucknow branch fixed assets when accounts of such assets are maintained at the Head Office.
(d) Goods worth Rs. 9000 despatched by Head Office to Allahabad branch on 30th December, received by that branch on 7th January (next year).
(e) Lucknow branch paid Rs. 400 dividend to a local shareholder on behalf of the Head Office.
(f) A sum of Rs. 600 being arrears of call money was received by the Allahabad branch from a shareholder in November but was not communicated to the Head Office till 3rd January(next year).
(g) Lucknow branch draw a bill receivable for Rs. 5000 on Allahabad branch which sends its acceptance.
Pass adjusting journal entries in the books of Head Office.

11. Give Journal entries for incorporation of Delhi Branch accounts in the head office and show the branch account in Head Office books after incorporating therein the assets and liabilities.
The trial balance as on 31st December, 2001 is as under:

Dr Cr
Manufacturing Expenses 10000
Salaries 10000
Wages 40000
Cash in hand 2000
Purchases 80000
Goods received from H.O. 15000
Rent 4000
General expenses 5000
Sales 150000
Purchases returns 1000
Opening stock 30000
discount earned 1000
Debtors 15000
Creditors 5000
H.O. account 54000
211000 211000

Closing stock at branch Rs. 30000. Deprecation is to be provided on branch Machinery of Rs. 50000 @ 20 Per cent Branch Furniture of Rs. 3000 @ 15 per cent. Rent outstanding is Rs. 500

12. The Trail Balance of the Madras branch of a company as on 31st March 1995 was as under:
Stock on 1-1-1994 6000
Furniture 2400
Sundry Debtors and Creditors 5600
Goods received from Head Office 16000
Established expenses 2200
Cash at Bank 1400
Cash in Hand 400
Head Office Account 11000
Sales 22800
34000 34000
Stock on 31st March 1995 Rs. 4600.
Prepare Branch Profit and Loss Account and Branch Account in the Account in the books and give the journal entries in the Head Office Books for incorporating the assets and liabilities of the Madras Branch.

13. Following is the Trial Balance of Bangalore Branch as on 31-3-1995:
Rs. Rs.
Furniture 1400
Cash at Bank and on hand 1780
Office expenses 470
Rent 960
Debtors and creditors 3700 1850
Salaries 1500
Gods supplied to Head Office 6000
Sales 38000
Goods received from Head Office 8000
Purchase 18800
Stock, 1St July 1994 6000
Head Office Account 3240
45850 45850
Closing stock was valued at Rs.2700. The Branch Account in the Head Office books on 31-3-1995 stood at Rs.460 (Dr). Goods worth Rs. 2500 sent by Head Office to Branch and remittance of Rs. 1200 sent by Branch to Head Office were in transit.
You are required to incorporate the above trial balance of the Branch in Head Office and give the Bangalore Branch account appearing finally in the Bombay Head Office books