Tuesday, May 24, 2022

ACCOUNTANCY FORM 5-BRANCH ACCOUNT

ACCOUNTANCY FORM 5-BRANCH ACCOUNT

ACCOUNTANCY FORM 5-BRANCH ACCOUNT
Tuesday, May 24, 2022

ACCOUNTANCY FORM 5-BRANCH ACCOUNT

UNAWEZA JIPATIA NOTES ZETU KWA KUCHANGIA KIASI KIDOGO KABISA:PIGA SIMU/WHATSAPP: 0787237719

ACCOUNTANCY FORM 5-BRANCH ACCOUNT




BRANCH ACCOUNTS/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

  1. Dependent Branches
  2. 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

  1. Home branches
  2. Foreign branches

BRANCH ACCOUNT

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 braches 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



BRANCH ACCOUNT

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

BRANCH ACCOUNT

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

Cash35,000Cash35,000
GOODS SENT TO BRANCH250,000Credit sales100,000
Collection from debtor180,000
Closing balance160,000
Stock40,000
Sundry debtors17,000
212,000
497,000497,000

 

JOURNAL ENTRIES

DETAILSDEBITCREDIT
Dodoma branch a/c250,000
Goods sent to branch a/c250,000
Beinggoods sent to Dodoma branch
Dodoma branch a/c35,00035,000
Cash/Bank35,000
Being cash sent to Dodoma branch
Bank / Bank260,000
Dodoma branch a/c260,000
Being cash collected from debtors
Stock40,000
Debtor17,000
Dodoma branch a/c57,000

 

BRANCH ACCOUNT

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




BRANCH ACCOUNT

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 balanceStock reserve on opening2200
Stock11,000
Debtors1700CASH REMITTANCES
Petty cash100Cash sales2650
Cash collected from debtor21000
Goods sent to branch20,000Goods returned by branch400
Goods sent to branch (profit loaded)3920
EXPENSES OF BRANCH
Rent600
Wages200         CLOSING BALANCE
Salaries900Stock13000
Debtors2000
Stock reserve (losing stock)
2600Petty cash25
Profit (P+L)8095
4519545195

BRANCH ACCOUNT

While preparing branch a/c care should be taken with respect to the following items.

  1. 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.
  1. At cost to H/O
  2. At selling price of the branch.
  3. 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

BRANCH ACCOUNT

    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/f13,000Cash24,600
Credit sales30,010Bad debts300
Discount Allowed1,360
Balance c/d16,750
43,01043,010

BRANCH ACCOUNT

  DR                                     BRANCH DEBTORS A/C                                                                      CR

Balb/f13,000Cash paid24,600
Credit sales30,000Bad debts300
Discount allowed1360
Goods returned by customers300
P&L16,450
43,01043,010

 



 DR                                      BRANCH STOCK A/C                                                                          CR

BRANCH_STOCK1

 DR                                         BRANCH     EXPENSES     A/C                                                          CR

Discount & commission1350P .& L6210
Bad debts300
Rent &rates and taxes900
salaries and wages3650
 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

BRANCH ACCOUNT

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 branch48,000sales 24,000
Goods returned by branch2,000
shortage on stock5,200
 balance   c/d16,800
 48,00048,000
 balance   c/d 16,800

 

 DR                                        GOODS SENT TO BRANCH         A/C                                                 CR

Branch adjustment12,000stock48,000
Trading36,000
 48,000 48,000




DR                                           BRANCH STOCK ADJUSTMENT A/C                                                CR

BRANCH_STOCK_ADJUSTMENT

BRANCH ACCOUNT

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  6,250sales branch debtors 25,500
Goods sent to branch20,000loss In transit   2,500
Profit over invoice price10,750loss 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)   500stock reserve (opening)1,250
loss in weight(normal)   100Goods sent to branch4,000
loss by theft (loading)   200branch stock10,750
Gross profit1,500
Stock reserve (closing   stock)13,700
16,000                                                        16,000

 

DR                                 BRANCH PROFIT AND LOSS A/C                                                              CR

Expense 8,000Branch  stock adjustment13,700
loss in transit 2,000Insurance claim  2,000
loss by theft    800
loss in weight    400
Net profit  4,500
15,700                                                                                15,700

 

BRANCH ACCOUNT
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      

DETAILSMEMOCOSTDETAILSMEMOCOST
Balance   b/d  6,5005,000branch debtors25,50025,500
Goods sent to branch20,00016,000loss in transit2,5002,000
profit over invoice10,750loss in weight500400
Gross profit13,700loss by theft1,000800
balance c/d7,5006,000
37,00034,70037,00034,700
 Balance b/d7,5006,000
 DRPROFIT OR LOSS ACCOUNT                                                      CR
Branch expenses8,000Gross profit b/d13,700
loss by theft   800Insurance claim 2,000
loss in transit2,000
loss in weight   400
Net profit4,500
 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

BRANCH ACCOUNT

 DR                     BRANCH STOCK A/C                                                                                          CR

DETAILSMEMOCOSTDETAILSMEMOCOST
Balance     b/d3,0002,000sales: cash6,0006,000
Goods sent to branch10,5007,000          credit4,8004,800
Gross profit3,600Balance c/d2,7001,800
13,50012,60013,50012,600
balance b/d27,00 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   400cash 4,500
branch stock4,800Balance     c/d    700
5,200 5,200
 Balance b/d 700

 

 DR       GOODS   SENT   TO   BRANCH   A/C                                                                                     CR

Adjustment3500Branch stock10,500
Trading7000
 10,500 10,500




DR                  B.S.   ADJUSTMENT   A/C                 CR

Gross profit3,600Balance   b/d 1,000
Balance   c/d   900Goods sent 3,500
4,500 4,500

 

BRANCH ACCOUNT
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

DETAILSMEMOCOSTDETAILSMEMOCOST
Balance b/d  4,400  3,300sales: cash  2,400   2,400
Goods sent branch24,80018,600         credit21,000 21,000
P&L(Gross Profit)  5,850Returns 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
29,20027,75029,200 27,750

 

BRANCH ACCOUNT

4400 x 25%   = 1100

24800 x 25% = 6200

3948 x 25%   = 987

DR                                             BRANCH   DEBTORS   A/C                                                                CR

Balance     b/d3,941cash22,400
Branch   stock21,000Discount 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

BRANCH ACCOUNT

ILLUSTRATION (1)

The following trial balances as on 31st December 19-8 were extracted from the books

Head officeBranch
TshsTshsTshsTshs
Johnson-capital155,000
Drawings27,500
Purchases984,750
Cost of processing25,250
Sales640,000410,000
Goods sent to/received by branch462,000440,000
Selling and general expenses94,50010,600
Debtors/creditors154,800300,70056,8005,400
Head office/branch-current Account194,900130,750
Balance at bank76,00038,750
1,557,7001,557,700546,150546,150

 




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.

BRANCH ACCOUNT

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 officeBranchHead officeBranch
Purchases984,750sales640,000410,000
Less closing stock of up processed goods50,000Goods sent to branch(received )

 

In transit

440,000

 

22,000

934,750Goods lost8,800
Cost processing25,250Closing stock28,00070,400
960,000
Goods from head office440,000
Gross profit c/d140,00049,200
1,130,000489,2001,130,000489,200
Selling and general expenses94,50010,600Gross profit b/d140,00049,200
Goods lost8,800
Provision for unrealized : 

 

1.on branch stock6,400
2.goods on transit2,000
Net profit67,10029,800
170,00049,200170,00049,200




BRANCH ACCOUNT

Balance sheet as at 31st December, 1990

Head officeBranchHead officeBranch
Capital155,000Branch current account160,550
Add: Net profit96,600Current asset
251,900Stock28,00070,400
Less: drawings27,500Stock of unprocessed goods50,000
24,400Goods in transit22,000
Head office current account160,550Debtors154,80056,800
Creditors300,7005,400Bank76,00038,750
Provisional for unrealized profit:Cash in transit42,150 
         Stock6,400
         Goods in transit2,000
533,500165,950 533,500165,950

 

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

DETAILSH/OFFICE DRH/OFFICEBRANCHBRANCH
CRDRCR
Capital100,000
Drawings12,000
Stock 1st April28,200 16,400
Purchases381,300
Sales328,100155,900
Goods from H.O to branch110,600110,600
Head office/branch a/c15,60015,600
Debtors37,700 17,800
Creditors41,300
Administration expenses33,000 6,400
Selling and distribution expenses25,800 3,800
Motor vehicle, Net of depreciation 20,000 7,500
Furniture, Net off depreciation10,500 3,400
Managers commission only 1,200
Cash at bank15,900 4,400
580,000580,000171,500171,500





BRANCH ACCOUNT

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

DETAILSHEAD OFFICEBRANCHDETAILSHEAD OFFICEBRANCH
Opening stock28,20016,400Sales328,100155,900
Add: Purchases38,300110,600
Good received 110,000
G.A.F.S409,500127,000
Less: C/stock41,40017,580
G.A.F.S409,500127,000
Less: C/stock41,40017,580
C.O.G.S368,100109,720
Gross profit c/d70,60046,480
438,700155,900438,700155,900
Admin expenses2310016300Gross profit b/d70,60046,480
D&D Expenses258003,800
Depr: Furniture2100680
Depr: M. Vehicle40001500
Managers com2200
Net profit1560022000
70,60046,480 70,60046,480

 

                       FINANCIAL POSITION AS AT 31ST MARCH 2012

NON-CURRENT ASSETS

 

Motor vehicle22,000
 Furniture 11,120 33,120
CURRENT ASSETS
Closing stock58,980
Branch a/c15,600
Debtors55,500
Cash at bank20,300150,380
CURRENT   LIABILITIES
Creditors41,300
Owing1000
Head office a/c15,600-57,900 92,480
 125,600
FINANCED BY
Capital 100,000
Add: Net profit 37,600
 137,600
Less Drawings 12,000
 125,600




BRANCH ACCOUNT


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/d12560Goods returned to h/o530
cash: motor vehicle2200cash remittance5120
cash: manager’s salaries350
Goods sent to branch4990
20,100balance   c/d14,450
20,10020,100
balance   b/d14,450

 IN THE BOOKS OF BRANCH

    DR                                                 H/O   CURRENT   A/C                                                         CR

Goods returned by branch530balance   b/d12560
cash remittance5120cash: motor vehicle2200
cash: manager’s salaries350
balance   c/d14,450Goods sent to branch4990
20,10020,100
balance   b/d14,450

 

TAZAMA VIDEO

VIDEO SOURCE;https://youtu.be/7nuC7g7bY6w



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