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Branch accounting

Branch Accounting

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Branch accounting

  1. 1. Branch Accounting 650 KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  2. 2. • Any establishment described as a Branch by the Company • Any establishment carrying on either the same or substantially the same activity as that carried on by the Head Office of the Company; • Branch is a business unit located at some distance from Home Office. • Unit carries merchandise obtained from the home office, makes sales, approves customers’ credit, and makes collections from it’s customers. • A branch may obtain merchandise solely from the home office. BRANCH ACCOUNTS INCLUDING FOREIGN BRANCH KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  3. 3. 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) CLASSIFICATION OF BRANCHES : KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  4. 4. Branch Accounts can be maintained at the Head Office, particularly when the business policies and administration of the Branch are wholly controlled by the Head office. The Branch prepares the periodic returns based on which the accounting records are maintained at the Head Office. DEPENDENT BRANCHES KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  5. 5. i. Final Accounts Method; ii. Debtors Method and iii. Stock and Debtors Method. METHODS OF ACCOUNTING : KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  6. 6. (a) At cost price Branch Trading and Profit & Loss Account FINAL ACCOUNTS METHOD KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amt Particulars Amount To Op. Stock at Branch (at Cost) To Goods sent from Head Office Less : Goods returned to H.O To Purchases (made directly by Branch, if any) To Direct Expenses at Branch (if any) To Gross proft c/d To Various expenses incurred at Branch (including Bad Debts ) To General P&L Account (Net Profit transferred) Xxxx Xxx Xxxx Xxxxxx Xxx Xxxx Xx Xx xxx By Sales made at Branch (net of returns) — Cash — Credit By Closing Stock at Branch (at Cost) By Gross profit b/d Xxxxx Xxx Xxx Xxx xxx
  7. 7. From the following particulars prepare Branch Trading and Profit and Loss Account in the books of Head Office: The Kabul stores invoiced goods to its Jalalabad Branch at cost which sells both for cash and credit. Cash received by the branch is remitted to H.O. Branch expense are paid direct from the H.O. except petty expense which are met by the branch. QUESTION. 1 KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amount Particulars Amount Opening Balance: Stock Debtors Petty Cash Goods from H.O. Cash Sales Credit Sales Sales Return Bad Debts Discount Allowed Goods returned to H.O. 5,000 20,000 1,000 50,000 30,000 40,000 4,000 1,000 1,000 5,000 Rates & Taxes Salary & Wages Petty expense by the branch Pilferage of goods Closing Balance: Stock Debtors Petty Cash 3,000 6,000 1,000 1,000 8,000 25,000 800
  8. 8. In the books of H.O. Branch Trading and Profit and Loss Account for the year ended…………… SOLUTION KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) To Opening Stock ,, Goods sent to Branch Less: Returns ,, Gross Profit c/d To Pilferage of Stock ,, Bad Debt ,, Discount Allowed ,, Rates & Taxes ,, Salaries & wages ,, Petty Expense ,, General Expense A/c Net Profit transferred 50,000 5,000 5,000 45,000 25,000 75,000 1,000 1,000 1,000 3,000 6,000 1,000 12,000 00 By Sales: Cash Sales Credit Sales Less: Return ,, Closing Stock Add: Pilferage of Stock By Gross Profit b/d 40,000 4,000 8,000 1,000 30,000 36,000 9,000 75,000 25000 25000 25000
  9. 9. If goods are invoiced above cost, the loading (i,e, profit element) on Opening Stock, Goods Sent from Head office (net of returns) and Closing Stock are reversed, to ascertain the true profits. (B) AT INVOICE PRICE KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  10. 10. X Ltd. has its H.O. in Kabul and a branch in Mazarshareef. H.O. supplied goods to its branch at cost plus 33 1/3%. From the particulars given below prepare a Branch Trading Account in the books of H.O. It is estimated that 2% of the goods received are lost through natural wastage. QUESTION 2 KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amount Particulars Amount Opening Stock (I.P.) Goods sent to Branch (I.P.) Return to H.O. (I.P.) 40,000 2,50,000 10,000 Sales: Cash Credit Discount allowed to customers Closing Stock (I.P.) 1,00,000 3,00,000 10,000 60,000
  11. 11. In the books of H.O. Trading Account for the year ended…………… Note: 1. Discount allowed to customer will appear in Branch Profit & Loss Account. 2. Loss through natural wastage is a normal loss and as such, the same should be charged against branch gross profit. So, no adjustment is required. SOLUTION: Particulars Amount Amount Particulars Amount Amount To Opening Stock Less: Loading ,, Goods sent to Branch Less: Returns to H.O. Less: Loading (1/4× 2,40,000) [1/3 on CP = 1/4 on SP] ,, Gross Profit c/d 40,000 10,000 2,50,000 10,000 2,40,000 60,000 30,000 1,80,000 2,35,000 4,45,000 By Sales: Cash Credit ,, Closing Stock Less : Loading (1/4× 60,000) 1,00,000 3,00,000 60,000 15,000 400000 45000 4,45,000
  12. 12. Y Ltd. with its H.O. in Kabul invoiced goods to its branch at Kandhar 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 31st March 2013 in H.O. books so as to show the actual profit and loss for the branch for the year. QUESTION 3. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  13. 13. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amount Particulars Amt.. Stock on 1.4.2012 (Invoice Price) Debtors ( ,, ) Goods received from H.O. (I.P.) Cash sales Credit Sales Cash received from Debtors 12,000 10,000 1,32,000 46,000 1,00,000 85,635 Discount allowed to Debtors Expense Remittance to H.O. Debtors (31.03.2013) Cash in hand (31.03.2013) Stock on 31.03.2013 (Invoice Price) 13,365 6,000 1,20,000 11,000 5,635 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.
  14. 14. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Working: 1.Cost price Catalogue Price Invoice Price (Cat. Price – 20%) `100 = `100 + 50% = `150 – `30 = `150 = `120 (Working 2) Particulars Amount Amount Opening Stock (I.P.) Add: Goods Sent (I.P.) Less: Cash Sales Invoice value of goods sold on credit (`1,00,000 x120 /150) 80,000 Closing Stock (I.P.) 46,000 80,000 15000 12000 1,32,000 1,44,000 1,41,000 ∴ Stock Destroyed by fire 3000 Particulars Amount Amount Particulars Amount Amount To Opening Stock (`12,000 * 100/120) ,, Goods sent to Branch (`1,32,000 *100/120) ,, Gross Profit c/d ,, Expense ,, Discount Allowed ,, Stock Destroyed by fire ,, Provision for Discount ,, General Profit & Loss A/c (Net Profit Transferred) 10,000 1,10,000 41,000 1,61,000 6,000 13,365 2,500 1,337 17,798 41,000 By Sales: Cash Credit ,, Closing Stock (`15,000 x 100/ 120) Add: Stock Destroyed (Bal. fig.) By Gross Profit b/d 46,000 1,00,000 12,500 2,500 1,46,000 15,000 1,61,000 41000 41,000
  15. 15. A branch may be operated under the retail profit basis as well as wholesale profit basis. For instance, the cost of a product is `100, retail price is `160, and the wholesale price is `150. Now, under retail profit basis there will be a profit of `60 earned by the branch.  But if it is sold under wholesale basis, the amount of profit will be `50. Usually, it is the usual practice to debit branch with wholesale profit basis to know the usual profit made by a branch. WHOLESALE AND RETAIL PROFIT AT BRANCH KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  16. 16. For this purpose, H.O. Trading account will be credited with goods sent to branch at wholesale price.  At the same time, closing stock at branch should be valued as per wholesale price basis. For this, H.O. should make proper reserve on closing stock at branch. The entry will be •Profit & Loss A/c ……… Dr. (Wholesale price - Cost price.) •To Stock Reserve A/c KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
  17. 17. X Ltd. has a retail branch at Hirat. Goods are sold at 60% profit on cost. The wholesale price is cost plus 40%. Goods are invoiced from Kabul 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 31st March 2013. 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. QUESTION 4 KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars H.O. Branch Stock on 01.04.2012 Purchase Goods sent to Branch (at invoice price) Sales Stock on 31.03.2013 Expenses 7,00,000 42,00,000 15,12,000 42,84,000 16,80,000 80,000 --- --- --- 14,40,000 2,52,000 40,000
  18. 18. WORKING: KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Let Cost price `100; Wholesale Price = `100 + `40 = `140; Invoice price `140; Selling Price at H.O. `140. Selling price at Branch `100 + `60 = `160. As goods are sent to branch at wholesale price i.e., `140, branch stock should be valued at the same price. Wholesale profit on opening stock of H.O. = `7,00,000 x 40 /140 = `2,00,000 on Closing stock of H.O. = `16,80,000 x 40 /140 = `4,80,000 on Closing stock of Branch = `2,52,000 x 40/ 140 = `72,000.
  19. 19. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Solution In the books of H.O. Puri Branch Trading Account for the year ended 31st March, 2013 Particulars H.O. Branch Particulars H.O. Branch To Opening Stock (I.P.) ,, Goods sent to Branch (I.P.) ,, Purchase ,, Gross Profit c/d To Expenses ,, Closing Stock Reserve on Branch Stock: (`2,52,000 x 40/ 140) On H.O. Stock: (`16,80,000 x 40/ 140) ,, General P&L A/c (Net profit Transferred) 7,00,000 --- 42,00,000 25,76,000 74,76,000 80,000 72,000 4,80,000 21,44,000 27,76,000 By Sales ,, Goods sent to Branch (I.P.) ,, Closing Stock By Gross Profit b/d By Opening Stock Reserve Provision for unrealized profit (`7,00,000 x 40 140) 42,84,000 15,12,000 16,80,000 7476000 25,76,000 2,00,000 27,76,000
  20. 20. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Solution In the books of H.O. Puri Branch Trading Account for the year ended 31st March, 2013 Particulars H.O. Branch Particulars H.O. Branch To Opening Stock (I.P.) ,, Goods sent to Branch (I.P.) ,, Purchase ,, Gross Profit c/d To Expenses ,, Closing Stock Reserve on Branch Stock: (`2,52,000 x 40/ 140) On H.O. Stock: (`16,80,000 x 40/ 140) ,, General P&L A/c (Net profit Transferred) 7,00,000 --- 42,00,000 25,76,000 74,76,000 80,000 72,000 4,80,000 21,44,000 27,76,000 --- 15,12,000 --- 1,80,00 0 16,92,000 40,000 ----- ----- 140,000 180,000 By Sales ,, Goods sent to Branch (I.P.) ,, Closing Stock By Gross Profit b/d By Opening Stock Reserve Provision for unrealized profit (`7,00,000 x 40/ 140) 42,84,000 15,12,000 16,80,000 7476000 25,76,000 2,00,000 27,76,000 14,40,000 --- 2,52,000 1692000 1,80,000 180,000
  21. 21. Under the Debtors System, the Branch Account is prepared in the following format to ascertain the Net profit from Branch operations. DEBTORS METHOD : (FOR DEPENDENT BRANCHES) KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amount Particulars Amount To Balances b/d (Assets at Branch at beginning) —Stock — Debtors — Petty Cash at Branch To Goods sent to Branch (at cost) To Sundry Creditors (direct purchase by Branch) To Bank — various expenses incurred at Branch To General P & L Account (Net Profit transferred) ××× ××× ××× ××× ××× ××× ××× ××× By Cash —Remittances received from Branch By Goods sent to Branch (returns at cost) By Balances b/d (Assets at Branch at end) — Stock — Debtors — Petty Cash at Branch By General P & L Account (Net Loss transferred) ××× ××× ××× ××× ××× ××× xxxx xxxx Note : If goods are invoiced above cost, the loading (i.e. profit element) on opening stock, Goods sent from Head Office (net of returns) and Closing Stock are reversed, in order to ascertain the true profits.
  22. 22. Prepare a Branch account in the books of Head Office from the following particulars for the year ended 31st March, 2013 assuming that H.O. sold goods at cost price 25%. QUESTION KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Particulars Amount Particulars Amount Stock on 1.4.2012 (I.P.) Debtors ( ,, ) Petty cash ( ,, ) Goods sent to branch (I.P.) Goods return to H.O. (I.P.) Cash Sales Cash received from Debtors 12,500 5,000 1,000 40,000 5,000 13,000 30,000 Bad Debts Allowances to customers Returns Inwards Charges sent to Bank: Rates & Taxes Salaries Misc. Exps. Stock on 31.03.2013 (I.P.) Debtors ( ,, ) Petty Cash ( ,, ) 2,000 1,000 1,000 3,000 8,000 1,000 15,000 4,000 1,000
  23. 23. Particulars Amount Amount Particulars Amount Amount To Balance b/d Stock Debtors Petty Cash ,, Goods sent to branch To Bank A/c: Rates & Taxes Salaries Misc. Expenses ,, Goods sent to Branch (Loading on returns) ,, Closing Stock Reserve (` 15,000 x 1/5) ,, General Profit & Loss A/c 12,500 5,000 1,000 3,000 8,000 1,000 18500 40000 12000 1,000 3,000 3,000 By Stock Reserve (Loading) ,, Bank A/c: Cash Sales (13000-1000) ,, Cash Received from Debtors ,, Goods sent to branch (Return to H.O.) ,, Goods sent to branch (Loading) 40000x1/5 By Balance c/d Stock Debtors Petty Cash 12,000 30,000 15,000 4,000 1,000 2500 42,000 5,000 8,000 20,000 77,500 77500 SOLUTION KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY) Note: Here, loading is 25/ 125 = 1/5 of invoice price. Hence, loading on opening stock will be `12,500 x 1/5 = `2,500 and so on.
  24. 24. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)

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