BRANCH ACCOUNTING FOR IPCC STUDENT CA MANISH PANDEY +91-9903559137 1

BRANCH ACCOUNTING

FOR IPCC STUDENT

CA MANISH PANDEY

+91-9903559137

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BRANCH

• A TRADING COMPANY MAY TRY TO EXPAND ITS BUSINESS BY OPENING BRANCHES AS ANOTHER ESTABLISHMENT OF THE COMPANY IN DIFFERENT LOCATIONS

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Branch Accounts

~ Branches keep their own records ~ Head office keeps records for branches

Procedures: Procedures:

Separate trial balances for the head Branch adjustment account (= Branch

office and the branches trading account)

Separate trading and profit and loss Branch profit and loss account

accounts for the head office and the

branches Trading and profit and loss account for the

whole business

Separate balance sheets for the

head office and the branches Balance sheet for the whole business

ACCOUNT KEPT BY BRANCH

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ACCOUNT KEPT BY BRANCH

• HEAD OFFICE AND BRANCH WILL OPEN A FULL SET OF BOOKS TO RECORD THEIR WON TRANSACTIONS INSTEAD OF BRANCH BOOKS ARE KEPT BY THE HEAD OFFICE

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•IN HEAD OFFICE BOOKS:• BRANCH CURRENT ACCOUNT IS OPENED TO

RECORD TRANSACTIONS BETWEEN THE HEAD OFFICE AND THE BRANCH

•IN BRANCH BOOKS:• HEAD OFFICE CURRENT ACCOUNT IS OPENED TO

RECORD TRANSACTIONS BETWEEN THEM

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HO’s Book: Branch Current

$ $Bal b/f X Goods in Transit X

Remittance from branch XCash in Transit XBranch net profit X

Bal c/f X

X X

Branch’s Book:HO Current

$ $Bal b/f XRemittance to HO

X Net profit X Bal c/f X

X X

GOODS IN TRANSIT (GIT)

• GOODS WERE SENT BY THE HEAD OFFICE BEFORE THE END OF THE FINANCIAL PERIOD, BUT RECEIVED BY THE BRANCH AFTER THE END OF THE FINANCIAL PERIOD

•GIT =GOODS SENT TO BRANCH – GOODS RECEIVED FROM HO

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REMITTANCES/CASH IN TRANSIT (CIT)

• THE REMITTANCE OR CASH WAS REMITTED BY THE BRANCH BEFORE THE END OF THE FINANCIAL PERIOD, BUT WAS RECEIVED BY THE HEAD OFFICE AFTER THE END OF THE FINANCIAL PERIOD

•CIT= REMITTANCE TO HEAD OFFICE – REMITTANCE FROM BRANCH

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PREPARATION OF THE FINAL ACCOUNTS

• SEPARATE TRADING AND PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS WOULD BE PREPARED FOR THE HEAD OFFICE AND THE BRANCH(ES)

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Transactions Head office (HO) books

Branch books

1 Opening Stock Dr HO Trading Cr Stock (opening stock)[at cost]

Dr Branch TradingCr Stock (Opening stock)[at Cost or Cost+profit]

2 Goods purchased directly from HO suppliers[at cost]

Dr Purchase(Trading)Cr Creditors

No entry

3 Goods purchased directly from Branch suppliers [at cost]

NO entry Dr Purchase(trading)Cr Creditors

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Branch books

4 Goods sent from HO to Branch [cost+profit]

Dr Branch CurrentCr Goods sent to Branch

Dr Good received from HOCr HO Current

5 Goods returned from Branch to HO

Dr Goods sent to branchCr Branch Current

Dr HO CurrentCr Good received from HO

6 Cash sales/Credit sales

Dr HO Cash/DebtorsCr HO Sales

Dr Branch cash/ debtorsCr Branch sales

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Branch books

7 Closing stock Dr Stock(Closing)Cr HO Trading

Dr Stock (Closing)Cr Branch Tradinggood purchased directly from Branch suppliers [at cost] & goods received from HO [cost+profit]

8 Gross profit on trading

Dr HO TradingCr HO profit and loss

Dr Branch TradingCr Branch profit and loss

9 HO expenses paid by HO

Dr Expenses (P&L) Cr Cash/Bank

No entry

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Branch books

10 Branch expenses paid by Head Office

Dr Branch CurrentCr Cash/Bank

Dr Expenses (P&L)Cr HO Current

11 Branch expenses paid by Branch

No entry Dr Expenses (P&L)Cr Cash/Bank

12 Administrative charges for services rendered by HO to Branch

Dr Branch CurrentCr HO P&L (Income)

Dr Branch P&LCr HO Current

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Branch books

13 Provision for Unrealized Profit (Branch & Goods in Transit)[cost+profit]

Increase in provisionDr HO P&LCr Prov. For Unrealized profitDecrease in provisionReverse

No entry

14 Goods in Transit(GIT)

Dr Goods in TransitCr Branch Current

NO entry

15 Cash in Transit(CIT)

Dr Cash in TransitCr Branch Current

No entry

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Branch books

16 Profit made by the branch

Dr Branch CurrentCr Retained profit

Dr Branch P&LCr HO Current

17 Profit made by HO

Dr P&LCr Retained profit

No entry

18 Cash remittances from the branch

Dr BankCr Branch Current

OrDr BankCr remittance from branchDr Remittance from branchCr Branch Current

Dr HO CurrentCr Bank

Or Dr Remittance to HOCr BankDr HO CurrentCr Remittances to HO

INTER-COMPANY TRANSACTIONS• IT WOULD NOT BE TRANSFERRED TO THE TOTAL

COLUMN OF THE TRADING AND PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET

• FOR EXAMPLE, GOODS SENT TO THE BRANCH, GOODS FROM THE HEAD OFFICE, SERVICE OVERHEADS CHARGED BY THE HEAD OFFICE TO THE BRANCH, HEAD OFFICE CURRENT ACCOUNT, BRANCH CURRENT ACCOUNT PROVISION FOR UNREALIZED PROFIT

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EXAMPLE -1 18

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Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $Cash and Bank 114300 80800Debtors 360000 40000HO Current 146000Branch Current 194000Fixed assets 1532000 152000Stock,1Jan 1997 60000 36000Creditors 96000 10000Prov. For dep 38300 3800Remittances to HO 11000Remittances from Branch 10000Capital 1200000

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HO Branch $ $ $ $Retained Profits 112000 Purchases and Sales 900000 1400000 860000Good sent to branch 664000 Good from HO 616000 Selling Expenses 120000 48000Service Charged Received 5000Administrative Expenses 245000 36000 3525300 3525300 1019800 1019800Additional information:1. Goods purchased by the HO are sent to the branch at cost2. Stock at 31 Dec 1997: HO $80000; Branch $106003. Depreciation is to be provided at 10% on cost per annum4. Administrative expenses include an annual charge of $5000 for services rendered by the head officeRequired:Prepare final accounts of HO and Branch for the year ended 31Dec 1997

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Trading and profit and loss a/c for the year ended 31 Dec 1997

HO Branch Total$000 $000 $000 $000 $000 $000

Sales 1400 860 2260Good Sent to Branch 664 - -

2064 860 2260Less COGSOpening Stock 60 36 96 Purchases 900 - 900Goods from HO - 616 -

960 652 996

Less Closing stock(WK1)80 880 10.6 641.4 138.6 857.4

Gross profit 1184 218.6 1402.6

Add: Service charges received 5 - -Less: Depreciation 153.2 15.2 168.4

Selling expense 120 48 168Admin. Exp.(WK2)245 518 36 99.2 276 612.4

Net profit 670.8 119.4 790.2

80+10.6+48

245+36-5

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WK1:The total closing stock should be included Goods in transitas GIT are still unsold goods at year end but those goods aretransported on the way=> 80+10.6+48 = 138.6

Wk2:The total administrative expenses should deduct the inter-Company service charges of $5000=> 24.5+36-5=276

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HO’s Book: Branch Current

$ $Bal b/f 194000Goods in Transit

(664000-61600) 48000Remittance from branch 10000Cash in Transit (11000-10000) 1000

Branch net profit 119400

Bal c/f 254400

313400 313400Branch’s Book:

HO Current$ $

Bal b/f 146000Remittance to HO 11000 Net profit 119400Bal c/f 254400

265400 265400

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Balance Sheet as at 31 Dec 1997

HO Branch Total$000 $000 $000 $000 $000 $000

Fixed Assets 1532 152 1684Less provision for Dep 191.5 19 210.5

1340.5 133 1437.5

Current AssetsStock 80 10.6 138.6Goods in Transit 48 - -

Branch Current 254.4 - -Debtors 360 40 400

Cash and Bank 114.3 80.8 196.1Cash in Transit 1 - -

Less Current LiabilitiesCreditors 96 10 106

Working Capital 761.7 121.4 628.7 2102.2 254.4 2102.2Capital 1200 - 1200

80+10.6+48

114.3+80.8+1857.7 131.4 734.7

Retained profit 902.2 - 902.2Head Office Current - 254.4 -

212.2 254.4 2102.2

112+670.8+119.4

GOODS SENT TO BRANCH AT MARK-UP

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GOODS SENT TO BRANCH AT A MARK UP

•THE HEAD OFFICE SUPPLIES GOODS TO ITS BRANCH WITH AN INVOICE PRICE AT COST PLUS PROFIT

•GOODS SENT TO BRANCH A/C AND GOODS RECEIVED FROM HO A/C ARE VALUED AT INVOICE PRICE.

• IF THERE IS UNSOLD STOCK AT THE END OF THE ACCOUNTING PERIOD, THE UNREALIZED PROFIT-IN-STOCK MUST BE ELIMINATED FROM THE CONSOLIDATED FINAL ACCOUNTS

•A PROVISION FOR UNREALIZED PROFIT A/C WILL BE OPENED TO MEASURE UNEARNED PROFIT INCLUDED IN THE CLOSING STOCK OF THE BRANCH AND REFLECT IN THE HO’S BOOK

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PROVISION FOR UNREALIZED PROFIT

=STOCK AT MARK UP* MARK UP

100%+MARK UP

• STOCK MARK UP= CLOSING STOCK AT BRANCH SENT FROM HO + GOODS IN TRANSIT

• CLOSING STOCK OF BRANCH INCLUDE GOODS DIRECTLY PURCHASED FROM SUPPLIERS WILL NOT BE CONCERNED IN THE CALCULATION OF THE PROVISION OF UNREALIZED PROFIT

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Account entries

Increase in Provision Dr P/L Cr Provision for unrealized profit

Decrease in Provision Dr Provision for unrealized profit Cr P/L

•The increase or decrease in the provision should be entered in the profit and loss a/c•The balance should be appear in the balance sheet under Current Liabilities•The total stock= stock in HO+stock in branch+stock in transit - provision for unrealized profit

EXAMPLE - 229

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Goods sent form the head office are charged to the branchAt cost plus 10% the closing stock was valued as follows: Date HO Branch Goods in transit31 Dec 1991 80000 66000 22000(1st year of business) 31 Dec 1992 96000 86900 550031 Dec 1993 84000 71500 495031 Dec 1994 108000 75900 550

Required Prepare Provision for unrealized profit account for 1992-1994

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Provision for unrealized profit91 $ 91 $Dec 31 Bal c/d 8000 (66000+22000*10/110

Dec 31 P/L 8000

92 92

Dec 31 Bal c/d 8400 (869000+5500)*10/110

Jan 1 Bal b/d 8000Dec 31 P/L 400

93 93

8400 8400

Dec 31 Bal c/d 6950 (71500+4950)*10/110

Dec 31 P/L 1450Jan 1 Bal b/d 8400

8400 8400

94 94

Jan 1 Bal b/d 6950Dec 31 Bal c/d 6950 (75900+550)*10/110

STOCK LOSS

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Normal stock loss Abnormal stock lossRelated to the ordinary

activities of the businesse.g. Obsolete stock,

damaged stockNo entry needed

Caused by an exceptional events

e.g. fire loss, burglary loss

Accounting recorded needed

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Accounting entries – abnormal Loss

Events HO’s book Branch’s book

Total column

Stock loss in the HO

Dr P/LCr Trading (cost)

No entry Dr P/LCr Trading (Cost)

Stock loss in transit

Dr Goods sent to BranchCr Branch Current (Mark up)Dr P/LCr Trading (Cost)

No entry Dr P/LCr Trading (cost)

Stock loss in Branch

NO entry Dr P/LCr Trading (cost)

Dr P/LCr Trading (cost)

EXAMPLE-3 34

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Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. All goods sold by branch are supplied by the HO at cost plus 10% Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $Share Capital 260000Profit and loss account 125000HO Current 79500Branch Current 85000Fixed assets 345000 70000Stock,1Jan 1997 48500 15400Debtors/Creditors 60400 35000 14700 37200 Prov. For dep 13700 16400Remittances to HO 26000 Remittances from Branch 22000

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HO Branch $ $ $ $Bank and cash 15900 3100 Purchases and Sales 255000 229700 44600 199700Good sent to branch 154000 Good from HO 148500 Provision for unrealized profit 1400Administrative Expenses 31000 10500 840800 840800 332800 332800Additional information:1. Stock as at 31 Dec 1997 excluding goods in transit was valued at followings:

Head office, at cost $32600Branch, at cost to branch- received from HO$16500- own purchases $8000

The branch stock at 31 Dec 1996 consisted wholly of goods received from the head office

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2. On 20 Nov 1997 some goods received by the branch from the head office were destroyed by fire. No entry has been made for this loss. The cost of these goods to the branch was $11000

3. Depreciation is to be provided on fixed asset at 2% per annum on cost

RequiredPrepare final accounts for HO and Branch separately as at 31 Dec 1997

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Trading and profit and loss a/c for the year ended 31 Dec 1997

HO Branch Total$000 $000 $000 $000 $000 $000

Sales 229.7 199.7 429.4Good Sent to Branch 154 - -

383.7 199.7 429.4Less COGS

Opening Stock (WK1) 48.5 15.4 62.5 Purchases 255 44.6 299.6Goods from HO - 148.5 -

303.5 208.5 362.1

Less Closing stock(WK3)32.6 270.9 24.5 173 60.6 291.5

Gross profit 112.8 26.7 137.9

Fire loss - 11 10Administrative 31 10.5 41.5Prov forUnrealized profit 0.6 38.5 - 22.9 - 59.8

(1.5+5)-1.4

Less:Fire loss (WK2) - 11 10

Less: Depreciation 6.9 1.4 8.3

74.3 3.8 78.1

16.5+8

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WK1:HO and Branch value stock on different bases in this case. HO’s Stock is valued at cost; while Branch’s stock is valued at mark-up.Total opening stock should be recorded at cost price

HO+Branch(at mark up) – Opening prov. for unrealized profit= 48.5+15.4+1.4 = 62.5

WK2:Fire loss in total column should be recorded at cost price rather than mark-up priceInvoice price = Cost + ProfitCost = Invoice Price – Profit

= 1.1 – 1.1*10/110 = 10

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WK3:Total closing stock should be included HO’s stock, Branch’s Stock and Goods in transit

HO’s stock and Branch (own purchases)’s stock are valued atcost;while Branch (received from HO)’s stock and Goods in transit are valued at mark-up. Those goods should be adjustedat cost price

Total closing stock should be included:32.6+8+(16.5-16.5*10/110)+(1.1-1.1*10/110)= 60.6

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WK4: Provision for unrealized profit

Bal b/f 1400

Bal c/f 2000(16500+5500)*10/110

P/L 600

2000 2000

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Balance Sheet as at 31 Dec 1997

HO Branch Total$000 $000 $000 $000 $000 $000

Fixed Assets 345 70 415Less provision for Dep 20.6 17.8 38.4

Current AssetsStock 32.6 24.5 60.6Goods in Transit 5.5 - -

Branch Current(WK1) 57.3 - -Debtors 60.4 14.7 75.1 Cash and Bank 15.9 3.1 23

Cash in Transit 1 - -

Less Current LiabilitiesCreditors 35 37.2 72.2

Working Capital 138.7 5.1 86.5 463.1 57.3 463.1Capital 260 - 260

15.9+31+4175.7 42.3 158.7

Retained profit 203.1 - 203.1Head Office Current WK2) - 57.3 -

12.5+74.3+3.8

324.4 52.2 376.6

Prov for unrealized 2 - -profit

463.1 57.3 463.1

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WK1:HO’s book:

Branch Current

Bal b/f 85000Branch net profit 3800

Goods in transit 5500Remittance from branch22000Cash in transit (26000-22000) 4000Bal c/f 57300

88800 88800

Wk2:Branch’s book:

HO Current

Bal b/f 79500Branch net profit 3800Bal c/f 57300

Remittance to HO 26000

833000 833000

ACCOUNT KEPT BY HEAD

OFFICE44

ACCOUNT KEPT BY HO

• THE BRANCH DO NOT KEEP THEIR WON RECORDS, THE HO WILL KEEP ALL ACCOUNTING RECORDS FOR THE BRANCH TRANSACTIONS

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GOODS ARE INVOICED TO THE BRANCH AT COST PLUS PROFIT

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Cost + Profit = Invoiced price

Goods Sent to Branch a/c

Branch Stock Adjustment a/c

Branch Stock a/c

The gross profit will be calculated in Branch Stock Adjustment account

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Transactions Accounting entries

Opening stock balance

Branch stock a/c-opening “debit” balance recorded as “cost plus profit”

Branch Stock Adjustment a/c- Opening “Credit” balance recorded as “Profit” portion only

Goods sent to branch

Dr Branch Stock [cost+profit]Cr Goods sent to Branch [cost]Cr Branch stock adjustment [profit]

Goods returned by Branch to HO

Dr Goods sent to Branch [cost]Dr Branch stock adjustment [profit]Cr Branch Stock [cost+profit]

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Credit Sales at the Branch

Dr Branch Debtors (selling price) Cr Branch Stock

Cash Sales at the Branch

Dr Branch Cash (selling price)Cr Branch Stock

Goods returned by customer to Branch

Dr Branch Stock (selling price)Cr Branch Debtors

Bad debts, Discount Allowed to customer

Dr Branch Profit and lossCr Branch Debtors

Branch expenses Dr Branch Profit and lossCr Cash/Bank

Branch income Dr Cash/BankCr Branch Profit and loss

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Treatment of closing stock

Branch Stock a/c- actual stock+ GITrecorded as “cost plus profit” will be entered on the credit side as closing debit balance

Branch stock adjustment a/c- actual stock + GIT recorded as “Profit” portion will be entered on debit side as closing credit balance

Net amount of Goods sent to Branch deducted from HO Purchases a/c and transfer to trading a/c

Dr Goods sent to Branch [cost]Cr Head Office Purchases/Trading

Branch transferred Stock adjustment to branch P/L

Dr Branch Stock AdjustmentCr Branch Profit and loss

Treatment of Branch net profit

Dr Branch Profit and lossCr Head Office profit and loss

EXAMPLE-4 50

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Sino Ltd. Sends goods at the selling price to the branch. The selling price is cost plus 10 per cent. The branch accounts are maintained by the head office. Transactions between the head office and the branch for the year ended 31 December 1997 were as follows:

$ Opening stock at branch at selling price 110,000

Goods sent to branch at cost 750,000

Goods returned to the head office at cost 50,000

Credit sales by branch 354,000

Cash sales by branch 350,000

Goods returned to branch at selling price 33,000

Closing stock at branch at selling price 171,500

Closing goods in transit at selling price 37,500

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Branch Stock(SP)

Branch Adjustment(Profit)

Goods Sent to Branch(cost)

$ $

$ $

$ $

Bal b/f 110000Gd sent to branch(750000*1.1) 825000Branch debtors-return 33000

Branch cash 350000Branch debtors 354000Return to HO (50000*1.1) 55000

Bal c/f (171500+37500) 209000

Bal c/f(209000*10/110) 19000

Branch P/L 61000

Return to HO(55000*10/110) 5000Branch stock (75000*0.1) 75000

Bal b/f (110000*10/110) 10000

HO Purchase 700000

Branch stock 50000Branch stock 750000

968000 968000

85000 85000

750000 750000

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Stock Loss in Branch-Normal Loss event related to ordinary activities of the business e.g. pilferage, stock wastage, unaccounted stock

-Abnormal Loss caused by exceptional event e.g. fire, burglary etc

-Goods lost in transit

Dr Branch Stock Adjustment [cost+profit]Cr Branch Stock

Dr Branch Profit & Loss [cost]Dr Branch Stock Adjustment [profit]Cr Branch Stock [cost+profit]

Dr Branch adjustment [profit]Dr Profit & Loss [cost]Cr Branch Stock [cost+profit]

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Stock transfer from branch A to branch B

Dr Goods sent branch A [cost]Dr Branch A Adjustment [profit]Cr Branch A Stock [cost+profit]

Dr Branch B Stock [cost+profit]Cr Good sent to branch B [cost]Cr Branch B stock [cost+profit]

Branch Stock Valuation-reduction in selling price

Dr Branch AdjustmentCr Branch Stock [with the total reduction off the selling price]

Addition mark up-Goods are sent to the branch at mark up lower than selling price

-Goods are sold to customers with an additional mark up

Dr Branch Stock [cost+profit]Cr Branch adjustment [profit]Cr Goods sent to branch [cost]

Dr Branch StockCr Branch adjustment [profit]

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Cash Misappropriation-loss from the theft of the cash takings

Dr Cash Misappropriated Cr Cash

Dr Branch profit and lossCr Cash Misappropriated

EXAMPLE-556

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Joyce Ltd. Has a head office in Central and two branches, one in Shatin and the other in Tsuen Wan. Branch accounts are maintained by the head office. Goods are invoiced to Shatin at cost plus 20 per cent. This is the selling price. Joyce Ltd. Sent goods at cost plus 25 per cent to Tsuen Wan. The selling price in this branch was cost plus 30 per cent.

The head office books showed the following balances related to transactions between the head office and its two branches for the year ended 31 December 1997:

Shatin Tsuen Wan

$ $

Opening stock at cost 100,000 56,000Credit sales by branches 800,000 476,840

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Shatin Tsuen Wan

$ $

Goods sent to branches at cost 806,000 400,000

Goods returned by branches at cost 80,000 --

Stock lost in first at cost 64,000 --

Reduction in selling price 13,500 --

Cash received from debtors 340,200 345,320

Discount allowed 2,000 3,000

Bad debts written off 500 800

Returns by debtors 2,400 --

Branch transfer at selling price from Shatin

To Tsuen Wan 960

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Shatin Tsuen Wan

$ $

Closing stock at selling price 91,680 117,000

Goods in transit from head office to Shatin

At selling price 4,800

Expenses 26,800 34,500

Any stock unaccounted for may be regarded as pilferage and normal wastage.

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Shatin Branch Branch Stock(SP)

$ $Bal b/f (100000*1.2) 120000Branch debtors 800000

Branch Adjustment (Profit)$ $

Return to HO(80000*0.2) 16000

Branch stock (806000*0.2) 161200Bal b/f (100000*0.2) 20000

Goods Sent to Branch(cost)$ $

Gd return to HO 80000Branch stock 806000

Branch Debtors(SP)

$ $Branch stock 800000

Gd sent to branch(806000*1.2) 967200

Return to HO (80000*1.2) 96000Fire loss (64000*1.2) 76800Branch adj.-reduction in selling price 13500

Fire loss (64000*0.2) 12800Branch adj.-reduction in selling price 13500

Branch profit and loss account for the year ended 31 Dec 1997$ $

Fire loss 64000

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Shatin Branch Branch Stock

$ $Bal b/f (100000*1.2) 120000Gd sent to branch(806000*1.2) 967200Branch debtors-return 2400

Branch debtors 800000Return to HO (80000*1.2) 96000Fire loss (64000*1.2) 76800Branch adj.-reduction in selling price 13500

Branch Debtors$ $

Branch stock 800000Branch cash 340200Discount allowed 2000

Branch stock-return 2400Branch profit and loss account for the year ended 31 Dec 1997

$ $

Discount allowed 2000Bad debts 500

Fire loss 64000

Bad debts 500

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Branch transfer 960

Branch debtors 800000Return to HO (80000*1.2) 96000Fire loss (64000*1.2) 76800Branch adj.-reduction in selling price 13500

Branch Adjustment$ $

Return to HO(80000*0.2) 16000


Fire loss (64000*0.2) 12800Branch adj.-reduction in selling price 13500Branch transfer 160 (960*20/120)

Goods Sent to Branch$ $

Gd return to HO 80000Branch stock 806000Branch transfer(960*100/120) 800

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Branch transfer 960

Branch debtors 800000Return to HO (80000*1.2) 96000

Bal c/f (91680+4800) 964801089600 1089600

Fire loss (64000*1.2) 76800Branch adj.-reduction in selling price 13500

Pilferage & wastage(Bal fig) 5860


Bal c/f(96480*20/120) 16080

Branch P/L(Bal fig) 116800

Return to HO(80000*0.2) 16000


181200 181200

Fire loss (64000*0.2) 12800Branch adj.-reduction in selling price 13500Branch transfer 160 (960*20/120)

Pilferage & wastage 5860

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HO Purchase(bal.fig.) 725200

Gd return to HO 80000Branch stock 806000

806000 806000

Branch transfer(960*100/120) 800

Branch Debtors$ $

Branch stock 800000Branch cash 340200

800000 800000

Discount allowed 2000

Bal c/f 454900

Bad debts 500 Branch stock-return 2400


Expense 26800

Branch Adj.- gross profit 116800

116800 116800


Net profit 23500

Bad debts 500

Fire loss 64000

TSUEN WAN BRANCH

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Tsuen Wan Branch Branch Stock

$ $Bal b/f (56000*1.3) 72800Gd sent to branch(400000*1.25) 500000Branch adj(400000*0.05) 20000

Branch debtors 476840



Branch stock (400000*0.05) 20000


Branch stock 400000

Branch Debtors$ $


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Branch Debtors$ $

Branch stock 476840Branch cash 345320Discount allowed 3000Bad debts 800


Discount allowed 3000Bad debts 800

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Branch debtors 476840

Gd sent to branch(800*1.25) 1000

Branch adj.(800*0.05) 40 Branch Adjustment

$ $

Branch stock (400000*025) 100000Bal b/f (56000*0.3) 16800

Branch stock (400000*0.05) 20000Branch stock-branch transfer (800*0.25) 200

Branch stock (800*0.05) 40


Branch stock 400000

Branch stock-branch transfer 800

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Branch debtors 476840Bal c/f 117000

593840 593840Branch Adjustment

$ $

Bal c/f(117000*30/130) 27000

Branch stock (400000*025) 100000Bal b/f (56000*0.3) 16800

137040 137040

Branch P/L(Bal fig) 110040

Gd sent to branch(800*1.25) 1000

Branch adj.(800*0.05) 40

Branch stock (400000*0.05) 20000Branch stock-branch transfer (800*0.25) 200

Branch stock (800*0.05) 40

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HO Purchase(bal.fig.) 400800

Branch stock 400000

400800 400800

Branch Debtors$ $


476840 476840


Bal c/f 127720Bad debts 800


Expense 34500

Branch Adj.- gross profit 110040

110040 110040


Net profit 71740

Bad debts 800

Branch stock-branch transfer 800

PREPARATION OF THE FINAL ACCOUNTS FOR THE HEAD OFFICE

• AFTER CALCULATING THE BRANCH PROFITS OR LOSSES, THE OVERALL PROFIT AND LOSS FOR THE HEAD OFFICE CAN BE COMPUTED

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Account entries

Transactions Accounting Entries

Balance transferred from goods sent to branch account to the head office purchases account

Dr Goods sent to branchCr HO purchases/trading

Branch net profit transferred to head office profit and loss account

Dr Branch Profit and lossCr HO P/L

EXAMPLE-673

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The following trial balalnce was extracted from the books of Joyce Ltd Trial Balance as at 31 December as at 31 Dec 1997

$ $Share Capital 1656000Profit and loss account 300900Fixed assets 800000Stock at Head Office,1Jan 1997 250000 Debtors/Creditors 774600 950000Prov. for dep 200000Purchases 3800000Sales 3463200Administrative expenses 225000Selling expenses 108000Bank and cash 456500

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$ $

Branch stock 1 Jan 1997-Shatin 250000

- Tsuen Wan 120000

Branch adjustment- Shatin 20000

- Tsuen Wan 16800

6606900 6606900

Additional information:1. On 31 Dec 1997, stock in the HO was valued at $1800002. The branches paid local expenses and remitted all the

remianing cash received from debtors to the HO. NO entry had been made about the remittances from the branches.

3. Depreciation is to be charged on the fixed asset at 10% perannum on cost.

Prepare final account for Joyce Ltd for the year ended 31 Dec1997

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Joyce Ltd.

Trading and Profit and Loss Account for the year ended 31 December 1997

$ $ $

Opening Stock 250,000 Sales 3,463,200

Purchases 3,800,000

Less Goods sent to Branch 1,126,000 2,674,000

($725,200 + $400,800) 2,924,000

Less Closing Stock 180,000

Cost of Goods Sold 2,744,000

Gross Profit 719,200

3,463,200 3,463,200

Provision for Depreciation 80,000 Gross Profit 719,200

Administrative Expenses 225,000 Branch Profit

Selling Expenses 108,000 - Shatin 23,500

Net Profit 401,440 -Tsuen Wan 71,740

814,440 814,440

77

Joyce Ltd.

Balance Sheet as at 31 December 1997

$ $

Fixed Assets 800,000 Share Capital 1,656,000

Less Provision for Depreciation 280,000 Profit & Loss Account ($300,900 + $401,440) 702,340

520,000

Current Assets Current Liabilities

Stock 350,400 Creditors 950,000

Debtors ($774,600 + $454,900 + $127,720) 1,357,220

Bank and Cash (W1) 1,080,720

3,308,340 3,308,340

78

Workings:W1. Branch Cash

Shatin Tsuen Wan Shatin Tsuen Wan

$ $ $ $

Branch Debtors 340,200 345,320 Expenses 26,800 34,500

Remittances to HO 313,400 310,820

340,200 345,320 340,200 345,320

NoteTotal Stock:

$HO 180,000Shatin 91,680Tsuen Wan 117,000Goods in transit 4,800Provision for Unrealized Profit (43,080)

350,400

Documents

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