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
- Dependent Branches
- 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
- Home branches
- 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.
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 | |||
|
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.
- At cost to H/O
- At selling price of the branch.
- 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
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
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
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
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 |
