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BRANCH ACCOUNTS
OBJECTIVE TYPE QUESTIONS
BRANCH
ACCOUNTIN
G
Branch
: A branch is a
separate segment of
a business. In order
to increase the sales,
business houses
arerequires to market
their products over a
larger territory and
may generally spli...
divisions may be
located in different
part of the samecity
or in different cities
of the same country
or in different
coun...
controls the
activities of various
branches.
Branch accounting
: Branch accounting
is the process
through which the
accoun...
Objectives of
branch accounting
: The main objects of
branch accounts are
dependent on the
nature of the
business and spec...
keeping the branch
accountsacceptable
to all businesses are
as follows.1.
To know the profit
or loss of each
branch separa...
To ascertain the
financial position of
each branch
separately on a
particular date.3.
To know the cash &
goods requirement...
To evaluate the
progress and
performances of
each branch5.
To calculate
commission for
payment to the
managers, if based
on profits of
branch.6.
To give concrete
suggestions for the
improvement in the
working of the
various branches.7.
To meet the
requirements of
specific enactments
as all branches of a
company must keep
theaccounts for audit
purpose.
Type...
F
rom accounting
point of view the
following are the
main types of
branches:
a)
Dependent Branch
(Branch not
keeping full system
of accounting)b)
Independent
Branch (Branch
keeping full system
of accounting)c)
Foreign Brancha)
Dependent Branch
(Branch not
keeping full system
of accounting).
The following are
the main features of
such branches:I.
S...
which are received
from the head office
and are notusually
allowed to make
purchases in the
open market except
with the ex...
Goods are supplied
by the head office to
such branches either
at cost price or at
invoiceprice.III.
All expenses of the
br...
are paid by thehead
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by the
branchmanager out
of petty cash book
balance. Such book
is maintained at the
branch either
assimple petty cash
book...
The amount received
from cash sales or
cash received from
debtors is either
remitted tothe head
office daily or
deposited ...
The branch manager
is normally expected
to sell the goods for
cash only but he may
beauthorized to sell
goods on credit as...
The branch with the
above features, do
not keep proper set
of books of
accounts. In order
tosupply the
requisite accountin...
branch keepsome
memoranda of
records, such as
Stock Register
, the
Cash Book
and the
Petty Cash Book
.
Stock Register :
It is maintained with
a view to keep a
record of all goods
received from the
head office,or
returns made to the
head offic...
period,breakages and
losses of goods and
balances of stock
available in hand at
the close of the
accountingperiod.
Cash Bo...
cash sales, receipts
fromdebtors, & cash
remitted to head
office from time to
time.
Petty Cash Book:
It is maintained to
r...
postage,conveyance
and entertainment
etc.If however the
branch is authorized
to make credit sales,
a Sales Day Book
and a
...
Accounting
Records For Head
Office or System
Of Accounting
For Branch:
A dependent
branch does not
keep proper
accounts but
accounts are
maintained in the
headoffice books
only. Thus the
system of
accounting for the
branch to be
adopted by the
headoffice depends
on:
y
The size of the
branch
y
The degree of
control sought to
be exercised
y
The nature and
volume of business
transactions
y
The special
circumstances
under which the
branch is operating
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office may keep
the branch
accounts in
its
Debtor System
(Synthetic Method
Final Account
System
Stock & Debtor
System
(Analytical
Method)
W
holesale Branch
System
Debtor System
This system is also
called synthetic
methods, is
adopted generally
in those
brancheswhich are
fairly small in size.
Under ...
opens a
separateaccount
for each branch in
order to record all
transactions
relating to the
branch.
Thisaccount is a
nomin...
nature and is
prepared to
calculate profit and
loss foreach
branch. The goods
supplied by the
head office to the
branch ma...
or at cost plus
profit. The
following are the
journal entries
which are passed
in thebooks of the
head office to
record br...
Transactions Debit
Credit
1) When goods are
sent to branch
Branch A/c Goods
sent to branch A/c2)
F
or return of goods to
H...
Branch A/c Branch
A/c3)
F
or transferring the
balance of goods
sent to branchA/c
Goods Sent to
Branch A/c
Purchases (in
Tr...
Trading A/c (in mfg.
concern)4) When
cheque or draft is
sent for branch
expenses Branch A/c
Bank A/c5) When
cheque or draf...
F
or closing balances
of Assets Branch
Asset A/c Branch
A/c7)
F
or beginning
balances of assets
next year Branch
A/c Branch Assets
A/c8)
F
or closing balances
of liabilities A/c
Branch A/c Branch
Liabilities A/c9)
F
or opening balances...
year Branch
Liabilities A/c
Branch A/c10)
F
or branch profit
Branch A/c General
Profit & Loss A/c11)
F
or Branch Loss
General Profit &
Loss A/c Branch A/c
It should be
carefully noted that
sales, discounts,
bad debts,
expense...
from debtors to the
branch are not
direct transactions
between the branch
and the headoffice,
and therefore they
are not t...
Account in
thebooks of the
head office
according to this
system.Moreover,
losses due to
pilferages, wastage
and other loss...
normal orabnormal
reasons are also
completely ignored
under this method.
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The main defect of
this method is that
it does not provide
full information for
analysis of
branchprofit &
loss. To overco...
Trading & Profit
and Loss
Accounthas to be
prepared, which is,
of course, a
memorandum
account not
forming a part of
the f...
accounting.In
short, branch
account is debited
with the opening
balance and branch
assets, goods sent
tobranch account
les...
for remittance and
closing balances of
branchassets. The
difference between
the two sides will
be profit or loss of
the br...
office) will appear
as under after
posting of
theentries.
Branch
Accocunt(IN H.O.
BOOKS)
Treatment of of
Certain Branch
Transactions1)
Branch Expenses
paid by the branch
out of Petty Cash.
Such expenses will
be ...
the close reduced
balance of cash will
be shown on the
credit side of
thebranch account.
Such expenses need
not be shown i...
head office to the
branch (if the petty
cash is maintained
on imprestsystem),
then these must be
debited to the branch
acc...
shown on the debit
and credit side
respectively of the
branchaccount.
2)
Depreciation of
Fixed assets.
This is not shown i...
But the closing
balanceof the fixed
assets will be shown
on the credit side of
the branch account
after deduction of
theam...
To Branch Cash in
Hand By Branch
Liabilities A/cTo
Branch Stock By
Bank (Remittances
by the branch i.e.
,To Branch Debtors...
F
urniture either
through branch
debtors or directTo
Branch Prepaid
from branch debtors
- any amount
spentTo Goods Sent
to...
by branch
managerGoods
returned to Head
Office By branch
cash in handTo Bank
(Expense paid by
H.O.) By Branch
StockTo Bran...
Branch DebtorsBy
Branch
F
urnitureBy Branch
Prepaid
c*To General Profit
& Loss A/c (Profit)
*By General Profit
& Loss A/c
(Loss)*Balancing
figure is either or
loss
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3
)
...
discount allowed
pertaining to
branch.
These items are
pertaining to debtors
account and will not
be shown in the
branch
a...
taken into
consideration while
ascertaining the
amount of openingor
closing balance of
debtors or amount
received from
deb...
4)
Goods in transit.
Goods in transit is
the difference
between goods sent
by head office
andreceived by the
branch. Such ...
on the both sides of
the branch accountor
will be ignored
totally while
preparing the branch
account.
5)
Purchase of fixed...
If the branch has
purchased any fixed
assets, then onone
hand branch account
will be credited by
the head office and
on th...
amount. If branch
has purchased the
asset on creditbasis
and liability arising
from such purchase
will be shown on the
deb...
Sale of Fixed Asset.
If the sale is for
cash, cash
remittance will
increase from the
branch butasset will
reduce in value ...
isautomatically
adjusted through the
above adjustments.
Invoice Price
Method
When the goods
are sent by the
head office to...
price i.e. cost plus
somepercentage of
profit, the branch
manager is
required to sell the
goods at invoice
price only.Good...
achieve the
following
objectives.I.
In order to keep
secret from the
branch manager
the cost price of
the goods and
profitmade, so that
the branch manger
may not start a
rival and
competitive
business withthe
concern.II.
In order to have
effective control
on stock i.e. stock
at any time must
be equal toopening
stock plus goods
received from ...
sales made at the
branch.
Accounting
Adjustments
required in Head
Office Books
The branch records
are not in any way
affec...
invoicing of goods
at cost plus
profit.But, in order
to calculate the
profit or loss made
by branch, some
accounting
adjus...
required to be
passed in the
books of the HO
for eliminating the
profitelement
included in (i)
branch opening
stock, (2) g...
returns made
bybranch to head
office and
(3)branch closing
stock.I.
F
or adjustment of
excess price of the
opening stock at
branchStock
reserve A/c Dr.To
Branch A/c
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or adjustment of
excess price of the
closing stock of
unsold goods at
branchBranch
Account Dr.To
Stock Reserve
A/cIII.
F
or adjustment of
excess price of
goods sent to
branch less returns
to head
officeGoods sent
to branch A/c
Dr.To Branch
A/cClosing stock
should always be
valued at cost or
market price
whichever is
lower. This is
basedon the
principle sof
con...
no profit should be
anticipated and all
losses should
beprovided.
Moreover the
unsold stock lying
in the branch will
not e...
sold.Therefore, it
is necessary to
make provision for
the profit element
included in the
unsold stock.
Calculation of
Mark...
F
or calculating
excess price, the
following
procedure is
adopted:Suppose
the good are
invoiced at cost
plus 25%. If the
cost is Rs. 100,
profit is Rs. 25,
and thenselling
price would be Rs.
125. The ratio of
profit to selling...
difference or the
excess price in
value between the
invoice price and
cost price
thereforewill be
made on the basis
of 1/5...
the percentage is
given on sale price
as25% on sale
price, then suppose
the sale price is Rs.
100, the profit will
be Rs. ...
percentage on cost
will be 33.33%
(1/3 of cost).
Final Account
System
According to this
system, the profit
or loss made by the
branch is
determined by
preparing
Branch Trading
& Profit Loss
Account at cost
price
. It should be
carefully noted that
allexpenses
whether paid by
the head office or
by the branch are...
Trading andProfit
& Loss Account
prepared for the
branch.The profit
or loss as disclosed
by this account
isexactly same as...
according to
Debtor/ Synthetic
system. Itshould be
further noted that
the branch trading
and profit loss
account is only a...
part of the full
accounting system.
If the branch
account is also
prepared
inaddition to the
Branch Trading &
Profit and L...
branch account
will be treatedas a
personal account
and not considered
in the nature of a
nominal account
under the
debtor...
account under such
circumstances, will
show a debit
balance which will
beequal to net
worth or net asset
available at bran...
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Stock and
Debtors System
There is yet
another ...
and loss of a
branch which is
popularly knownas
or
Analytical
Method.
It is an elaborate
method of keeping
branchaccounts
and is considered
very useful where
the branch
turnover is
sufficientl...
degree of control is
sought to be
exercised by the
head office over
the
branch.According
to this system,
instead of openin...
account, as is done
in case of
debtorssystem,
separate accounts
are opened for
various
transactions at
branch. According
t...
separate ledger for
each branch will
have to be
maintained at head
office for
keepingaccounts
such as Branch
Stock, Branch...
Goods Sent to
Branch, Branch
Expenses,and
Branch Assets etc.
Branch Cash or
petty Cash
Account may
sometimes be
required to
bemaintained if the
branch is permitted
to use the available
cash for making
certain
payments.Preparati
on of Branch Stock...
from branch to
branch depending
uponthe method of
charging goods
sent to branch.
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40711339-Branch-Accounting[1].pdf
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Branch Accounting
Iqra Mughal
47 Branch Accounts
Shivaram Krishnan
Branch Accoun...
Branch Accounting
bilalyasir
Advanced Accounting Branch Accounting, Branch Accounting, Presentation Branch...
BRANCH ACCOU...
Pro-forma Invoice Price
Head office may send goods to branch either at "cost" or at "pro-forma invoice price".
In previous...
The method of preparing Branch a/c while goods are sent at pro-forma invoice price is
the same with the exception that the...
Advance Financial Accounting (FIN-611)
VU
transaction. Whereas, valuation of opening and closing stocks is not reported th...
57
Advance Financial Accounting (FIN-611)
VU
21. For closing branch account into the profit and loss account
Incase of profit...
41,000
Expenses paid by Head office
10,400
Cash Sales
17,500
Cash received from Debtors
37,900
Pilferage of goods by the e...
89,280
89,280
58
Advance Financial Accounting (FIN-611)
VU
Working:
Debtors Account
Particulars
Rs.
Particulars
Rs.
Op. Debtors (Balancing ...
The head office may also prepare an Income Statement to find out the profits of
branch. Such Income Statement is merely a ...
Fill in the Blanks:
1. The system of operating at several places through one’s own
establishments is called .
2. The main ...
Dependent, Independent; 4 - Cost, Invoice; 5 - Small; 6 - Nominal
Account; 7 - Do not figure or not taken, shown; 8 - Cred...
Indicate the correct answers:
1. Under Debtors System, the Debtors at close are shown
(i) On the credit side of the Head O...
(iv) None of the above
6. Under Debtors System, the Branch Account is
(i) Real Account
(ii) Nominal Account
(iii) Personal...
Followings are the main differences between branch and department:
1. Branches are separated from the main organization. D...
same roof.
5. Allocation of branch common expenses does not arise. Allocation of
departmental common expenses is a tough j...
Branch accounts
Branch accounts
Branch accounts
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Branch accounts

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Branch accounts

  1. 1. BRANCH ACCOUNTS OBJECTIVE TYPE QUESTIONS BRANCH ACCOUNTIN G Branch : A branch is a separate segment of a business. In order
  2. 2. to increase the sales, business houses arerequires to market their products over a larger territory and may generally split their business intocertain divisions or parts. These various parts or
  3. 3. divisions may be located in different part of the samecity or in different cities of the same country or in different countries in the world. These are known asbranches. The head office
  4. 4. controls the activities of various branches. Branch accounting : Branch accounting is the process through which the accounting system of a branchis maintained.
  5. 5. Objectives of branch accounting : The main objects of branch accounts are dependent on the nature of the business and specific need of a particular branch. The objectives of
  6. 6. keeping the branch accountsacceptable to all businesses are as follows.1. To know the profit or loss of each branch separately.2.
  7. 7. To ascertain the financial position of each branch separately on a particular date.3. To know the cash & goods requirements of the various branches.4.
  8. 8. To evaluate the progress and performances of each branch5. To calculate commission for payment to the managers, if based
  9. 9. on profits of branch.6. To give concrete suggestions for the improvement in the working of the various branches.7.
  10. 10. To meet the requirements of specific enactments as all branches of a company must keep theaccounts for audit purpose. Types of Branches: i.
  11. 11. F rom accounting point of view the following are the main types of branches: a) Dependent Branch (Branch not
  12. 12. keeping full system of accounting)b) Independent Branch (Branch keeping full system of accounting)c) Foreign Brancha)
  13. 13. Dependent Branch (Branch not keeping full system of accounting). The following are the main features of such branches:I. Such branches sell only those goods
  14. 14. which are received from the head office and are notusually allowed to make purchases in the open market except with the express permissionof the head office.II.
  15. 15. Goods are supplied by the head office to such branches either at cost price or at invoiceprice.III. All expenses of the branch such as rent, salary of staff, advertisement etc.,
  16. 16. are paid by thehead office.You're reading a free preview. Pages 2 to 7 are not shown in this preview. Read the full version IV. Petty expenses such as cartage, entertainment, freights etc. are paid
  17. 17. by the branchmanager out of petty cash book balance. Such book is maintained at the branch either assimple petty cash book or on imprest system.V.
  18. 18. The amount received from cash sales or cash received from debtors is either remitted tothe head office daily or deposited in the account of the head office in some local bank.VI.
  19. 19. The branch manager is normally expected to sell the goods for cash only but he may beauthorized to sell goods on credit as well. Accounting records for branch:
  20. 20. The branch with the above features, do not keep proper set of books of accounts. In order tosupply the requisite accounting information to the head office at regular interval, each
  21. 21. branch keepsome memoranda of records, such as Stock Register , the Cash Book and the Petty Cash Book . Stock Register :
  22. 22. It is maintained with a view to keep a record of all goods received from the head office,or returns made to the head office during that period, sales made at the branch during the
  23. 23. period,breakages and losses of goods and balances of stock available in hand at the close of the accountingperiod. Cash Book: It is maintained to keep records of cash transactions such as
  24. 24. cash sales, receipts fromdebtors, & cash remitted to head office from time to time. Petty Cash Book: It is maintained to record small paymen of expenses such as carriage,
  25. 25. postage,conveyance and entertainment etc.If however the branch is authorized to make credit sales, a Sales Day Book and a Debtors Ledger willalso be required to be maintained.
  26. 26. Accounting Records For Head Office or System Of Accounting For Branch: A dependent branch does not keep proper accounts but
  27. 27. accounts are maintained in the headoffice books only. Thus the system of accounting for the branch to be adopted by the
  28. 28. headoffice depends on: y The size of the branch y
  29. 29. The degree of control sought to be exercised y The nature and volume of business transactions y
  30. 30. The special circumstances under which the branch is operating You're Reading a Free Preview Page 2 is not shown in this preview. Download The following are the main ways in which the head
  31. 31. office may keep the branch accounts in its Debtor System (Synthetic Method
  32. 32. Final Account System Stock & Debtor System (Analytical Method)
  33. 33. W holesale Branch System Debtor System
  34. 34. This system is also called synthetic methods, is adopted generally in those brancheswhich are fairly small in size. Under this system, the head office
  35. 35. opens a separateaccount for each branch in order to record all transactions relating to the branch. Thisaccount is a nominal account in
  36. 36. nature and is prepared to calculate profit and loss foreach branch. The goods supplied by the head office to the branch may be either at costprice
  37. 37. or at cost plus profit. The following are the journal entries which are passed in thebooks of the head office to record branch transactions.
  38. 38. Transactions Debit Credit 1) When goods are sent to branch Branch A/c Goods sent to branch A/c2) F or return of goods to H.O. Goods Sent to
  39. 39. Branch A/c Branch A/c3) F or transferring the balance of goods sent to branchA/c Goods Sent to Branch A/c Purchases (in Trading Concerns)or
  40. 40. Trading A/c (in mfg. concern)4) When cheque or draft is sent for branch expenses Branch A/c Bank A/c5) When cheque or draft is received for remittance Bank A/c Branch A/c6)
  41. 41. F or closing balances of Assets Branch Asset A/c Branch A/c7) F or beginning balances of assets next year Branch
  42. 42. A/c Branch Assets A/c8) F or closing balances of liabilities A/c Branch A/c Branch Liabilities A/c9) F or opening balances of liabilities A/c nest
  43. 43. year Branch Liabilities A/c Branch A/c10) F or branch profit Branch A/c General Profit & Loss A/c11) F
  44. 44. or Branch Loss General Profit & Loss A/c Branch A/c It should be carefully noted that sales, discounts, bad debts, expenses paid by branch andreturn
  45. 45. from debtors to the branch are not direct transactions between the branch and the headoffice, and therefore they are not taken care off while preparing for the Branch
  46. 46. Account in thebooks of the head office according to this system.Moreover, losses due to pilferages, wastage and other losses of stock due to
  47. 47. normal orabnormal reasons are also completely ignored under this method. You're Reading a Free Preview Page 3 is not shown in this preview. Download
  48. 48. The main defect of this method is that it does not provide full information for analysis of branchprofit & loss. To overcome this problem, a separate Branch
  49. 49. Trading & Profit and Loss Accounthas to be prepared, which is, of course, a memorandum account not forming a part of the fullsystem of
  50. 50. accounting.In short, branch account is debited with the opening balance and branch assets, goods sent tobranch account less returns, cheque received
  51. 51. for remittance and closing balances of branchassets. The difference between the two sides will be profit or loss of the branch.Branch account (In the books of the head
  52. 52. office) will appear as under after posting of theentries. Branch Accocunt(IN H.O. BOOKS)
  53. 53. Treatment of of Certain Branch Transactions1) Branch Expenses paid by the branch out of Petty Cash. Such expenses will be deducted fromthe branch cash and at
  54. 54. the close reduced balance of cash will be shown on the credit side of thebranch account. Such expenses need not be shown in the branch account. If such expenses arere- imbursed by the
  55. 55. head office to the branch (if the petty cash is maintained on imprestsystem), then these must be debited to the branch account. However, same opening and closingbalances of petty cash will be
  56. 56. shown on the debit and credit side respectively of the branchaccount. 2) Depreciation of Fixed assets. This is not shown in the branch account.
  57. 57. But the closing balanceof the fixed assets will be shown on the credit side of the branch account after deduction of theamount of depreciation.
  58. 58. To Branch Cash in Hand By Branch Liabilities A/cTo Branch Stock By Bank (Remittances by the branch i.e. ,To Branch Debtors cash sales + cash received from debtorsTo Branch
  59. 59. F urniture either through branch debtors or directTo Branch Prepaid from branch debtors - any amount spentTo Goods Sent to Branch A/c Less
  60. 60. by branch managerGoods returned to Head Office By branch cash in handTo Bank (Expense paid by H.O.) By Branch StockTo Branch Liabilities By
  61. 61. Branch DebtorsBy Branch F urnitureBy Branch Prepaid c*To General Profit & Loss A/c (Profit) *By General Profit & Loss A/c
  62. 62. (Loss)*Balancing figure is either or loss You're Reading a Free Preview Page 4 is not shown in this preview. Download 3 ) Credit sales, bad debts, sales returns, allowances, and
  63. 63. discount allowed pertaining to branch. These items are pertaining to debtors account and will not be shown in the branch account.However, these items will be
  64. 64. taken into consideration while ascertaining the amount of openingor closing balance of debtors or amount received from debtors which are shown in the branchaccount.
  65. 65. 4) Goods in transit. Goods in transit is the difference between goods sent by head office andreceived by the branch. Such goods will be shown either
  66. 66. on the both sides of the branch accountor will be ignored totally while preparing the branch account. 5) Purchase of fixed asset by the branch.
  67. 67. If the branch has purchased any fixed assets, then onone hand branch account will be credited by the head office and on the other the remittancefrom the branch will be reduced by the
  68. 68. amount. If branch has purchased the asset on creditbasis and liability arising from such purchase will be shown on the debit side of branch account. 6)
  69. 69. Sale of Fixed Asset. If the sale is for cash, cash remittance will increase from the branch butasset will reduce in value to be shown on the credit side of the branch account as this
  70. 70. isautomatically adjusted through the above adjustments. Invoice Price Method When the goods are sent by the head office to the branch at invoice
  71. 71. price i.e. cost plus somepercentage of profit, the branch manager is required to sell the goods at invoice price only.Goods are marked on invoice price to
  72. 72. achieve the following objectives.I. In order to keep secret from the branch manager the cost price of the goods and
  73. 73. profitmade, so that the branch manger may not start a rival and competitive business withthe concern.II.
  74. 74. In order to have effective control on stock i.e. stock at any time must be equal toopening stock plus goods received from the head office minus
  75. 75. sales made at the branch. Accounting Adjustments required in Head Office Books The branch records are not in any way affected due to
  76. 76. invoicing of goods at cost plus profit.But, in order to calculate the profit or loss made by branch, some accounting adjustments, asstated below, are
  77. 77. required to be passed in the books of the HO for eliminating the profitelement included in (i) branch opening stock, (2) goods sent to branch less
  78. 78. returns made bybranch to head office and (3)branch closing stock.I. F or adjustment of excess price of the
  79. 79. opening stock at branchStock reserve A/c Dr.To Branch A/c You're Reading a Free Preview Page 5 is not shown in this preview. Download II. F
  80. 80. or adjustment of excess price of the closing stock of unsold goods at branchBranch Account Dr.To Stock Reserve A/cIII.
  81. 81. F or adjustment of excess price of goods sent to branch less returns to head officeGoods sent to branch A/c Dr.To Branch
  82. 82. A/cClosing stock should always be valued at cost or market price whichever is lower. This is basedon the principle sof conservatism, i.e.
  83. 83. no profit should be anticipated and all losses should beprovided. Moreover the unsold stock lying in the branch will not earn any profit unless
  84. 84. sold.Therefore, it is necessary to make provision for the profit element included in the unsold stock. Calculation of Mark up or Load
  85. 85. F or calculating excess price, the following procedure is adopted:Suppose the good are invoiced at cost
  86. 86. plus 25%. If the cost is Rs. 100, profit is Rs. 25, and thenselling price would be Rs. 125. The ratio of profit to selling is 25/125 or 1/5. The adjustments forthe
  87. 87. difference or the excess price in value between the invoice price and cost price thereforewill be made on the basis of 1/5 of the invoice price. If
  88. 88. the percentage is given on sale price as25% on sale price, then suppose the sale price is Rs. 100, the profit will be Rs. 25. Therefore,cost will be Rs. 75. So the
  89. 89. percentage on cost will be 33.33% (1/3 of cost). Final Account System
  90. 90. According to this system, the profit or loss made by the branch is determined by preparing Branch Trading & Profit Loss
  91. 91. Account at cost price . It should be carefully noted that allexpenses whether paid by the head office or by the branch are debited to the
  92. 92. Trading andProfit & Loss Account prepared for the branch.The profit or loss as disclosed by this account isexactly same as that of the branch account prepared
  93. 93. according to Debtor/ Synthetic system. Itshould be further noted that the branch trading and profit loss account is only a memorandumacco unt not forming
  94. 94. part of the full accounting system. If the branch account is also prepared inaddition to the Branch Trading & Profit and Loss A/c, then such a
  95. 95. branch account will be treatedas a personal account and not considered in the nature of a nominal account under the debtorsystem. Then Branch
  96. 96. account under such circumstances, will show a debit balance which will beequal to net worth or net asset available at branch at the end of the accounting period.
  97. 97. You're Reading a Free Preview Page 6 is not shown in this preview. Download Stock and Debtors System There is yet another method of calculating profit
  98. 98. and loss of a branch which is popularly knownas or Analytical Method.
  99. 99. It is an elaborate method of keeping branchaccounts and is considered very useful where the branch turnover is sufficiently large andwhere a greater
  100. 100. degree of control is sought to be exercised by the head office over the branch.According to this system, instead of opening one branch
  101. 101. account, as is done in case of debtorssystem, separate accounts are opened for various transactions at branch. According to thissystem, a
  102. 102. separate ledger for each branch will have to be maintained at head office for keepingaccounts such as Branch Stock, Branch Debtors, and
  103. 103. Goods Sent to Branch, Branch Expenses,and Branch Assets etc. Branch Cash or petty Cash Account may sometimes be required to
  104. 104. bemaintained if the branch is permitted to use the available cash for making certain payments.Preparati on of Branch Stock Account will however, vary
  105. 105. from branch to branch depending uponthe method of charging goods sent to branch. You're Reading a Free Preview Page 7 is not shown in this preview. Download Activity (21) Filters Add to collectionReviewAdd NoteLike Showing AllMost RecentReviewsAll NotesLikes You've already reviewed this. Edit your review. Rating 0/5
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  108. 108. Branch Accounting bilalyasir Advanced Accounting Branch Accounting, Branch Accounting, Presentation Branch... BRANCH ACCOUNTS tanuj_baru Introduction to Branch Lecture Notes[1] pladop Branch Accounting Arpita Rathore Previous|NextPage 1 of 3 Read Unlimited Books for $8.99 per month Start your free 14 days No commitment.Cancel anytime. “Movie lovers have Netflix, music lovers have Spotify — and book lovers (whether they read literary fiction or best-selling potboilers) now have Scribd.”– NPR “[Scribd] is a place where you can browse and skim and read whatever strikes your fancy…”– Wired “For less than the price of buying one new book a month (e- or otherwise), you can wander through more than 50,000 books.”– Entrepreneur “This has got to be the next best thing to sliced bread. I can finish reading one book and go grab another instantly”– Wendy Brooks, a Scribd reader
  109. 109. Pro-forma Invoice Price Head office may send goods to branch either at "cost" or at "pro-forma invoice price". In previous section of this chapter we have discussed accounting treatment for a dependent branch to which the goods are sent to branch at cost price. In the forthcoming section we will discuss the accounting treatment for the dependent branch to which goods are sent at pro-forma invoice price. The treatment is slightly different but before discussing the accounting treatment we must know what pro- forma invoice price is and why head office prefers to send goods at pro-forma invoice price. Pro-forma invoice price is higher than the cost price. Adding a reasonable profit in the cost makes the price equal to the pro-forma invoice price. Here we must know what is selling price? Selling price is the price at which goods are sold to the customers. So the selling price will be higher than the pro-forma invoice price in normal circumstances. Difference between cost and pro-forma invoice price is known as loading and the difference between cost and the selling price is the profit in real terms. Head office usually sends goods to its branches at the pro-forma invoice price to keep its profit margin secret from the branch managers. Had the cost been known to the branch manager he would have been in a position to determine the exact profits enjoyed by the head office, which may induce the branch manager to confront the business as a competitor. Moreover by sending goods to the branches at pro-forma invoice price, the head office can dictate pricing policy to its branches, as well as save work at the branch because prices have already been decided. Sending goods at pro- forma invoice price is generally done where goods are of standard type, pre-packed and unlikely to fluctuate in price. Here it is worth mentioning that "pro-forma invoice" is name of the document which is sent to branches along with the goods sent; in this document description and quantity of the goods sent is written along with the price. Therefore the price appearing on the pro-forma invoice is named as pro-forma invoice price. The document which is sent to the customers to evident the sales of goods to them is known as "invoice"; this document discloses the quantity, description and selling price of the goods sold, along with the settlement terms. Technically speaking "selling price" may also be termed as "invoice price", but "invoice price" and "pro-forma invoice price" are different. It is a common error that often people do not care while using the terminology and confuse "invoice price" with the "pro-forma invoice price".
  110. 110. The method of preparing Branch a/c while goods are sent at pro-forma invoice price is the same with the exception that the accounting entries relating to the goods sent to and goods returned from the branch are recorded at pro-forma invoice price and a reverse adjustment is required with the amount of loading (difference between cost and pro-forma invoice price). Remember; the accounting entries for opening and closing stocks are recorded at cost price. Do not record stocks at pro-forma invoice price. Rationale; an accountant is supposed to record accounting entries evidenced by a source document. Goods sent to branch are evidenced through "pro-forma invoice" therefore price mentioned on the document cannot me ignored while recording this 56
  111. 111. Advance Financial Accounting (FIN-611) VU transaction. Whereas, valuation of opening and closing stocks is not reported through pro-forma invoice therefore to make it simple stocks are accounted for at cost. Accounting Entries in the Books of Head Office 11. For opening balances of assets at the branch Branch a/c Branch assets a/c (individual accounts) 12. For opening balances of liabilities at the branch Branch liabilities a/c (individual accounts) Branch a/c 13. For goods sent to the branch (at pro-forma invoice price) Branch a/c Goods sent to branch a/c 14. For return of goods by the branch (at pro-forma invoice price) Goods sent to branch a/c Branch a/c 15. For reversal of loading on (net) goods set to branch (with the amount of loading) Goods sent to branch a/c Branch a/c 16. For remittance of cash or cheque to the branch Branch a/c Cash/Bank a/c 17. For cash or cheque received from the branch Cash/Bank a/c Branch a/c 18. For closing balances of assets at the branch Branch asset a/c (individual accounts) Branch a/c 19. For closing balances of liabilities at the branch Branch a/c Branch liabilities a/c (individual accounts) 20. For closing goods sent to branch account. Goods sent to branch a/c Purchases a/c
  112. 112. 57
  113. 113. Advance Financial Accounting (FIN-611) VU 21. For closing branch account into the profit and loss account Incase of profit Branch a/c Profit & loss a/c Incase of loss Profit & loss a/c Branch a/c 22. For abnormal loss (should always be accounted for at cost) Abnormal loss a/c (at cost) Branch a/c Insurance claim a/c (claim admitted) Profit & loss a/c (balance if not admitted by the insurance company) Abnormal loss a/c (cost of the abnormal loss) Note: No accounting entry is required for normal losses. Solved Problem # 1 Excellent Garments of Multan has a branch at Lahore. Goods are supplied to the branch at cost. The expenses of the branch are paid from Multan and the branch keeps a sales journal and the debtors' ledger only. From the following information supplied by the branch, prepare a Branch Account in the books of the head office. Goods are sent to branch at pro-forma invoice price which is cost plus 20%. (All figures in rupees) Opening Stock (at Pro-forma invoice) 28,800 Closing Debtors 9,150 Closing Stock (at Pro-forma invoice) 21,600 Opening Debtors ? Goods received from HO (at Pro-forma invoice) 40,320 Bad Debt 140 Credit Sales
  114. 114. 41,000 Expenses paid by Head office 10,400 Cash Sales 17,500 Cash received from Debtors 37,900 Pilferage of goods by the employees (Normal Loss) 2,000 Solution: (Debtors System) In the books of Head Office (Multan) Lahore Branch Account Particulars Rs. Particulars Rs. Opening Stock 24,000 Cash Received from Branch 17,500 Opening Debtors 6,200 Cash Received from Debtors 37,900 Cash sent to Branch 10,400 Goods sent to Branch 6,720 Goods sent to Branch a/c 40,320 (loading) 18,000 General Profit & Loss a/c 8,360 Closing Stock 9,160 (Profit) Closing Debtors
  115. 115. 89,280 89,280 58
  116. 116. Advance Financial Accounting (FIN-611) VU Working: Debtors Account Particulars Rs. Particulars Rs. Op. Debtors (Balancing 6,200 Cash Received from Debtors 37,900 fig) 41,000 Bad Debts 140 Sales (credit) Cl. Debtors c/f 9,160 47,200 47,200 Opening stock at cost 28,800 x 100/120 = 24,000 (pro-forma invoice x % of cost by % of pro-forma invoice) Closing stock at cost 21,600 x 100/120 = 18,000 (pro-forma invoice x % of cost by % of pro-forma invoice) Loading on goods sent to branch (net) Rupees Goods sent to branch (at pro-forma invoice) 40,320 Less Goods returned by branch (at pro-forma invoice) 0 Net goods sent (at pro-forma invoice) 40,320 40,320 x 20/120 = 6,720 (pro-forma invoice x % of loading by % of pro-forma invoice) Income Statement System
  117. 117. The head office may also prepare an Income Statement to find out the profits of branch. Such Income Statement is merely a memorandum; the only reason for preparing the statement is to have full information of all transactions which are ignored in Debtor System (already discussed in the previous section). While preparing the Income Statement of the branch we shall be using all those skills which we have learned in the single entry system of accounting during conversion of single entry into double entry. We know very well that in Income Statement incomes and expenses are measured on the basis of accrual concept and the profits are measured according to the matching concept. So the cost of goods sold will be determined keeping in view that the goods sent to branch are equivalent to purchases of the branch and should be included at cost. Obviously the opening and closing stocks can not be measured at a value that is above its cost. Above problem can be solved through Income Statement System as well. Following
  118. 118. Fill in the Blanks: 1. The system of operating at several places through one’s own establishments is called . 2. The main establishment located at the main place of activity is called the and the subsidiary establishment located at various places are called . 3. Branches may be divided into 3 categories, branches, branches and foreign branches. 4. Goods supplied to Dependent Branches by the Head Office may be either at or at price. 5. The One Account System or Debtors System is generally adopted when the branch is fairly in size. 6. Branch Account is a in nature and is prepared in the Head Office Books. 7. Under Debtors System, bad debts and discounts allowed in the Branch Account. 8. Under the Debtors System the debtors (at close) are shown on the of the Branch Account after adjusting bad debts, discount allowed etc. 9. Under Debtors System fixed assets is shown on the credit side only after the amount of depreciation, if any. 10. Under the Debtors System, the Head Office will record all the transactions relating to the branch in the Branch Account through and relationship between the Branch and the Head Office. 11. Under the Debtors System, the Reserve for Doubtful Debts /Reserve for Discount on Debtors, should be from closing Debtors and only the good closing debtors will be recorded in the Branch Account. 12. Actual petty expenses incurred by the branch will in the Branch Account under the Debtors System. (Answers: 1 - Branch Organization; 2 - Head Office, Branches; 3 -
  119. 119. Dependent, Independent; 4 - Cost, Invoice; 5 - Small; 6 - Nominal Account; 7 - Do not figure or not taken, shown; 8 - Credit side; 9 - Deducting; 10 - Debtors, Creditors; 11 - Deducted; 12 - Not be recorded) State whether the following Statements are ‘True’ or ‘False’: 1. Under Debtors System, bad debts and discount allowed figure in the Branch Account. 2. Under Debtors System, Debtors at close are shown on the Debit Side of the Branch Account after adjusting for Bad Debts, discount allowed etc. 3. Under Debtors System, Depreciation is not shown in the Branch Account. 4. Reserve for Bad Debts and Reserve for Discount on Debtors will be recorded separately in the Branch account under the Debtors system. 5. Actual petty expenses incurred by the Branch Account under the Debtors system will not be recorded in the Branch Account. 6. Sales Returns will not appear directly in the Branch Account under the Debtors System. 7. Branch Account under Debtors System is a Real Account. 8. Under Debtors System Branch Account is debited with losses like bad debts, discounts allowed and depreciation. 9. When the Branch Manager is allowed petty cash on Imprest System, the amount remitted by Head Office to reimburse the actual expenses will be debited to the Branch Account. 10. Branch Account is a nominal account in nature and is prepared in the Branch Books. (Answers: False – 1, 2, 4, 7, 8, 10 True – 3, 5, 6, 9)
  120. 120. Indicate the correct answers: 1. Under Debtors System, the Debtors at close are shown (i) On the credit side of the Head Office Account (ii) On the debit side of the Branch account (iii) On the credit side of the Branch account after adjusting for bad debts, discount allowed etc. (iv) Are not shown in the Branch account 2. Under Debtors System treatment of Reserve for Bad debts is (i) Shown it on the credit side of Branch a/c (ii) It is not shown in Branch a/c (iii) It is deducted from the Branch Debtors and the good Branch debtors are shown in the Branch account (iv) It is shown on the debit side of the general Profit and Loss account 3. The treatment of petty expenses made by the Debtors System is as follows (i) It is not recorded in the Branch account (ii) It is shown on the debit side of the Branch account (iii) It is shown on the general Profit and Loss account of Head Office (iv) Only the closing balance of Petty Cash (Opening balance plus amount reduced from Head Office less petty expenses) will appear in the credit side of the Branch account 4. The Head Office sends goods at cost and instructs the branch to sell the goods at a profit of 20% on selling price. What is the total sales, if: Opening stock at Rs.36,000, Goods sent to branch Rs.6,00,000, Closing stock Rs.60,000 (i) Rs.6,00,000 (ii) Rs.7,20,000 (iii) Rs. 6,72,000 (iv) None of the above 5. Furniture on 1/04/2005 – Rs.20,000; Furniture sold on 1/10/2005 – Rs.9,000 (book value on 1/10/2005 – Rs.9,500); Furniture purchased on 1/10/2005 – Rs.17,000; Depreciation on Furniture – 10% p.a. From the above information, the value of Furniture shown on the Credit side of Branch Account under Debtors System will be (i) Rs.27,000 (ii) Rs.24,200 (iii) Rs.23,850
  121. 121. (iv) None of the above 6. Under Debtors System, the Branch Account is (i) Real Account (ii) Nominal Account (iii) Personal Account (iv) None of the above 7. Stock Reserve in relation on opening Stock appears (under the Debtors System) (i) On the debit side of the Branch Account (ii) On the credit side of the Branch Account (iii) On the Credit side of Head Office Account (iv) None of the above 8. Stock reserve in relation to closing stock appears (under the Debtors System) (i) On the debit side of the Branch Account (ii) On the credit side of the Branch Account (iii) On the debit side of Head Office Account (iv) None of the above 9. The cash and credit sales of the branch are Rs.5,000 and Rs.15,000 respectively. The amount collected from debtors is Rs.10,000. The amount to be credited to Branch Account under the Debtors System will be (i) Rs.20,000 (ii) Rs.15,000 (iii) Rs.10,000 (iv) Rs.25,000 10. The opening balance of Petty Cash at the Branch is Rs.2,000, amount received from the Head Office for Petty Expenses is Rs.10,000, the closing balance of Petty Cash is Rs. 3,000; Which of the following is the right answer under the Debtors System? (i) Rs.9,000 on the Debit side of the Branch Account as Petty Expenses (ii) Rs.3,000 on the Credit side of the Branch Account as Petty Cash (iii) Rs.7,000 on the Credit side of the Branch Account as Petty Cash Expenses. (iv) None of the above. (Answers: 1-(iii); 2-(iii); 3-(iv); 4-(ii); 5-(ii); 6-(ii); 7-(ii); 8-(i); 9-(ii); 10- (ii) )
  122. 122. Followings are the main differences between branch and department: 1. Branches are separated from the main organization. Departments are attached with the main organization under a single roof. 2. Branches are the outcome of tough competition and expansion of business. Departments are the result of fast human life. 3. Branches are geographically separated. Departments are not separated rather existed under a same roof. 4. Branches are of different types like dependent, independent and foreign. There is no such classification in department because all are common under the
  123. 123. same roof. 5. Allocation of branch common expenses does not arise. Allocation of departmental common expenses is a tough job. 6. To find out the net result of the organization, the reconciliation of different branch account is a main job.In departmental accounting, no reconciliation is necessary because there is a central account division.

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