- A branch is a business unit located away from the home office that carries out similar business activities. It obtains inventory from the home office, makes sales, approves customer credit, and collects payments. - Branches are classified as dependent or independent based on where their accounting records are maintained. Foreign branches operate in a country other than where the company is incorporated. - There are different methods for accounting for branch operations, including the final accounts method, debtors method, and stock and debtors method. Goods may be invoiced to branches at cost or above cost price.

1. Branch Accounting 650
KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)

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. 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. 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. 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. (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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)