Branch accounting
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Transcript of Branch accounting
Branch Accounting 650
KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)
• 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)
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)
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)
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)
(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)
XxxxXxxXxxxXxxxxx
Xxx
XxxxXxXxxxx
By Sales made at Branch (net of returns) — Cash — Credit By Closing Stock at Branch (at Cost)
By Gross profit b/d
Xxxxx
XxxXxxXxx
xxx
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
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 75,00
025000
25000 25000
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)
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 2,50,0
00 10,000
Sales: Cash Credit Discount allowed to customers Closing Stock (I.P.)
1,00,000
3,00,000
10,000 60,000
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 2,40,0
00 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
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)
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 1,32,0
00
46,000 1,00,0
00 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 1,20,0
00 11,00
0 5,635 15,00
0 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.
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
120001,32,000 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
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)
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)
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
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.
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
--- 42,00,0
00 25,76,0
0074,76,000 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
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
--- 42,00,0
00 25,76,0
0074,76,000 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
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.
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
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
1850040000
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.
KHURSHEED AHMAD ASSISTANT PROFESSOR (CONTROLLER OF FINANCES BAKHTAR UNIVERSITY)