Unit 6
BRANCH ACCOUNTS
A branch may be defined as section of an enterprise, geographically separated from the rest of the business, controlled by head office, and generally carrying on the same activities as of the enterprise. As a business grows, it may open up branches in different towns and cities in order to market its product/services over a large territory and thus increase its profit.
For example, Bata shoe Co. Ltd has branches in various cities all over the country. The same example holds good for a commercial banks also.
As per the provision of Companies Act, branch office in relation to a company means-
a) Any establishment described as a branch by the company ; or
b) Any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company; or
c) Any establishment engaged in any production, processing or manufacture.
It should be mentioned that a branch is not a separate legal entity it is simply a segment of a business. From an accounting standpoint, a branch is a clearly identifiable profit centre. In order to exercise greater control over the branches it is necessary to ascertain profit or loss made by such branches separately. Apart from this, specialised accounting techniques have to be adopted for controlling various branches activities and for their smooth running both at the branch level and at the head office level. The system of accounting vary between different enterprises in accordance with their type of activities, methods of operation and the preference of their managements.
From accounting point of view, the branches can be divided into the following main cases:
1) HOME BRANCHES:-
a) Dependent Branches (Where the head office maintains all the accounts)
b) Independent Branches (Where the branch keeps its own accounts)
2) FOREIGN BRANCHES:-
They almost invariably trade independently and record their transaction in foreign currency.
Dependent Branches
When the policies and administration of a branch are totally controlled by the head office, who also maintains its accounts, the branch is called as dependent branch.
Independent Branches
Independent Branches are those which make purchases from outside, get goods from Head Office, supply goods to Head Office and fix the selling price by itself Thus an independent Branch enjoys a good amount of freedom like an American Son.
The accounting arrangement of a branch depends upon its size, the type of activities, the methods of operation and the degree of control to be exercised by the head office. There are three main system of accounting for branches transaction, viz.
This system of accounting is suitable for the small- size branches. Under this, a Branch Account is opened for each branch in the head office ledger. All the transaction realiting to that branch is recorded in this account. The branch account is prepared in such a way that it discloses the profit or loss of the branch.
Head office may send goods to branch either at "cost price" or "selling price".
Cost price method:- under this method at the beginning of the year the branch Account is debited with the opening balances of asset such as stock, petty cash, furniture, prepaid expenses, etc. lying with the branch. Similarly, it is credited with the opening balance of liabilities of the branch such as, creditors, ots salary, rent, etc.
The branch accredited is then debited with the amount of goods sent to the branch and other amounts remitted to meet various expenses such as, salaries, rent, rates, taxes, etc. Likewise, the branch account is credited with the return of goods by the branch and receipts from branches. At the year end, Branch Account is debited with the closing values of liabilities and credited with the closing values of assets. The difference between the two sides represents profit or loss for the branch for a particular period.
Journal entries
1) For goods sent to branch
Branch A/c _______Dr.
To Goods Sent to Branch A/c
(Being goods sent to branch)
2) For goods returned by the branch
Goods Sent to Branch A/c _______Dr.
To Branch A/c
(Being goods returned by the branch)
3) For amount sent to branch for expenses
Branch A/c _______ Dr.
To Bank A/c
(Being cheque sent to branch for expenses)
4) For amount received from branch
Bank A/c _______ Dr.
To Branch A/c
(Being cash or cheque received from branch)
5) For closing goods sent to branch account
Goods Sent to Branch A/c Dr.
To Purchase A/c
(Being balance transferred to Trading Account)
6) For closing balances of assets at the branch
Branch Assets A/c ________ Dr. (Individually)
To Branch A/c
(Being closing balances of assets brought into account)
7) For closing balances of Liabilities at the branch
Branch A/c ________Dr.
To Branch Liabilities A/c (Individually)
(Being closing balances of liabilities brought into account)
8) For transferring Profit or Loss to General Profit and Loss Account
i) If Profit
Branch A/c _______ Dr.
To General Profit and Loss A/c
(Being branch profit transferred to General P & L A/c)
ii) If Loss
General Profit and Loss A/c ________ Dr.
To Branch A/c
(Being branch loss transferred to General P & L A/c)
The closing balances of branch assets and liabilities ace shown in the Balance Sheet
of the head office. At the beginning of the next year, the entire numbers 6 and 7 are
reversed so as to show opening balances in the Branch Account.
Under this method accounts relating to branch are maintained in a more comprehensive and detailed manner as compared to Debtors method. This method keeps a better control stock. Under this method separate accounts are prepared for various accounting function
This accounting procedure under this method depends upon the policy of head office with regard to pricing of goods send to branch. Head office may adopt one of the following methods for invoicing goods to branch.
When goods have been invoiced to branch at cost price.
In this case following accounts are prepared.
a) Branch Stock Account
b) Goods sent to Branch Account
c) Branch Debtors Account
d) Branch Expenses Account
e) Branch Profit & Loss Account
f) Branch Cash Account
I) When goods are sent to the branch (at invoice price)
Branch Stock A/c _____ Dr.
To Goods Sent to Branch A/c
2) When goods are returned by the branch to the H.O. (at invoice price)
Goods Sent to Branch A/c _______ Dr.
To Branch Stock A/c
3) When sales are made by the branch
i) For Cash Sales
Cash A/c _______ Dr.
To Branch Stock A/c
ii) For Credit Sales
Branch Debtors A/c _______ Dr.
To Branch Stock A/c
4) When Cash is received from Debtors
Cash A/c ______ Dr.
To Branch Debtors A/c
5) For Sales Returns
Branch Stock A/c ________ Dr.
To Branch Debtors A/c
6) For discount allowed, bad debts, etc.
Branch Expenses A/c ________ Dr.
To Branch Debtors A/c
7) For Shortage of Stock
Branch Adjustment A/c ________ Dr.(with amount of loading)
Branch P & L A/c ________ Dr. (with cost of shortage)
To Branch Stock A/c
For surplus at branch, the reverse entry will be passed.
8) For Branch Expenses paid in Cash
Branch Expenses A/c ______ Dr.
To Cash A/c
9) For Closing Branch Expenses Account
Branch P&L A/c ______ Dr.
To Branch Expenses A/c
10) For Adjustment of Loading on the Opening Stock
Stock Reserve A/c ______ Dr.
To Branch Adjustment A/c
11) ) For Adjustment of Loading on the Closing Stock
Branch Adjustment A/c ______ Dr.
To Stock Reserve A/c
12) For Adjustment Loading Goods sent to Branch
Goods Sent to Branch A/c ________ Dr.
To Branch Adjustment A/c
13) For Transfer of Gross Profit
Branch Adjustment A/c _______ Dr.
To Branch P & L A/c
DEBTORS METHOD-
Q.1 (AT COST)
Suri is having his Head office at Mumbai and Branch Office at Nasik. Prepare the branch Account in the books of the Head Office from the following transaction with the branch :
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Opening Balance at Branch: |
| Amounts remitted to the Branch for : |
|
- Petty Cash | 1,000 | - Petty Cash Expenses | 4,000 |
- Stock | 39,500 | - Salary | 12,000 |
- Debtors | 21,000 | - Rent and Taxes | 3,500 |
Goods Supplied to Branch during the year | 3,10,000 | Closing balances ay Branch: |
|
Amounts remitted by the branch |
| - Petty | 950 |
- Cash Sales | 1,13,200 | - Debtors | 53,000 |
- Realisation from Debtors | 2,30,300 | - Stock | 26,500 |
SOLUTION :-
IN THE BOOKS OF H.O.
Dr. NASIK BRANCH ACCOUNT. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d |
| By Bank (Remittance): |
|
Branch petty cash | 1,000 | - Petty Cash Expenses | 4,000 |
Branch Stock | 39,500 | - Salary | 12,000 |
Branch Debtors | 21,000 | - Rent and Taxes | 3,500 |
To Goods sent to Branch | 3,10,000 | Closing balance at Branch |
|
To cash remmitted for : |
| - Petty Cash | 950 |
Petty Cash Expenses | 4,000 | - Debtors | 53,000 |
Salary | 12,000 | - Stock | 26,500 |
Rent | 3,500 |
|
|
To General P&L (Bal Fig) | 32,950 |
|
|
TOTAL | 4,23,950 | TOTAL | 4,23,950 |
Q.2 (INVOICE PRICE)
D of Delhi have a branch at Madras. Goods are sent by the Head Office at Invoice Price which is at the Profit of 25% on Cost Price. All the Expenses of the branch are paid by the Head Office. From the following particulars, prepare Branch Account in Head Office Books
BALANCES | OPENING | CLOSING |
Stock at invoice | 11,000 | 13,000 |
Debtors | 1,700 | 2,000 |
Petty Cash | 100 | 25 |
TOTAL | 12,800 | 15,025 |
Goods sent to branch at invoice price Rs.20,000.
Expenses made by head office:-Rent Rs.600, Wages Rs.200, Salaries Rs.900
Remittance made to Head Office:- Cash Sales Rs.2,650, Cash collected from debtors Rs.21,000
Goods Returned by Branch at Invoice Price Rs.400
SOLUTION:-
IN THE BOOKS OF HEAD OFFICE
Dr. MADRAS BRANCH A/c. Cr.
PARTICULARS | AMOUNT | AMOUNT | PARTICULARS | AMOUNT | AMOUNT |
To Balance b/d |
|
| By Stock Reserve A/c b/d(Load on OP. Stock 11,000 X 25/125) |
| 2,200 |
Stock (IP) |
| 11,000 | By Bank |
|
|
Debtors |
| 1,700 | Cash Sales | 2,650 |
|
Petty Cash |
| 100 | Cash collected from Debtors | 21,000 | 23,650 |
To Goods sent to Branch (IP) |
| 20,000 | By Goods sent to branch (Returns at IP) |
| 400 |
To Bank (Expenses): |
|
| By Goods sent to branch (19,600 X 25/125; net Loading) |
| 3,920 |
Rent | 600 |
| By Balance c/d |
|
|
Wages | 200 |
| Stock (IP) | 13,000 |
|
Salaries | 900 | 1,700 | Debtors | 2,000 |
|
To Stock Reserve A/c c/d(Load on Cl. Stock 13,000 X 25/125) |
| 2,600 | Petty Cash | 25 | 15,025 |
To Net Profit tfd to general P&L (Bal Fig) |
| 8,095 |
|
|
|
TOTAL |
| 45,195 | TOTAL |
| 45,195 |
Note: Goods are sent by Head Office at @ 25% on Cost Price.
So, Cost + Profit = Invoice Price
100 + 25 = 125
Profit charged by Head Office is 1/5 or 20% of Invoice Price.
Q.3 (INVOICE PRICE)
One M.P. Head Office has a branch at Berhampur to which goods are invoiced at cost plus 20% .from the following particulars prepare the Branch Account in the Head Office Books :
PARTICULARS | AMOUNT |
Goods sent to Branch at invoice Price | 2,11,872 |
Total Sales | 2,06,400 |
Cash Sales | 1,10,400 |
Cash received from Branch Debtors | 88,000 |
Branch Debtors at commencement | 24,000 |
Branch Stock at commencement at Invoice price | 7,680 |
Branch Stock at Close of the period at Invoice Price | 13,440 |
SOLUTION :-
IN THE BOOKS OF M.P. HEAD OFFICE
Dr. BERHAMPUR BRANCH ACCOUNT. Cr.
PARTICULARS | AMOUNT | AMOUNT | PARTICULARS | AMOUNT | AMOUNT |
To Balance b/d |
|
| By Stock Reserve A/c b/d(Load on OP. Stock) |
| 1,280 |
Stock (IP) |
| 7,680 | By Bank |
|
|
Debtors |
| 24,000 | Cash Sales | 1,10,400 |
|
To Goods sent to Branch (IP) |
| 2,11,872 | Cash collected from Debtors | 88,000 | 1,98,400 |
To Stock Reserve A/c c/d(Load on Cl. Stock) |
| 2,240 | By Goods sent to branch (2,11,872 X 20/120; net Loading) |
| 35,312 |
To Net Profit tfd to general P&L (Bal Fig) |
| 34,640 | By Balance c/d |
|
|
|
|
| Stock (IP) | 13,440 |
|
|
|
| Debtors | 32,000 | 45,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
| 2,80,432 | TOTAL |
| 2,80,432 |
Working Note :
Dr. BERHAMPUR BRANCH DEBTORS ACCOUNT. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 24,000 | By Cash | 88,000 |
To Credit Sales | 96,000 | By balance c/d (balancing figure) | 32,000 |
TOTAL | 1,20,000 | TOTAL | 1,20,000 |
(2)
Total Sales =2,06,400
Less:- Cash Sales =1,10,400
Credit Sales =96,000
(3)
Goods are sent by Head Office at @ 20% on Cost Price.
So, Cost + Profit = Invoice Price
100 + 20 = 120
Profit charged by Head Office is 1/6 of Invoice Price.
STOCK & DEBTORS METHOD
Q.4 (AT COST)
The Canada commercial company invoiced goods to its Jaipur Branch at cost. The head office paid all the branch expenses from its bank except petty cash expenses which were paid by the branch. From the following details relating to the branch, prepare
(1)Branch Stock A/c
(2)Branch Debtors A/c
(3)Branch Expenses A/c
(4)Branch P&L A/c
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Stock (Opening) | 21,000 | Discount to Customer | 4,200 |
Debtors (Opening) | 37,800 | Bad Debts | 1,800 |
Petty Cash(Opening) | 600 | Goods returned by customers to branch | 1,500 |
Goods sent to H.O. | 78,000 | Salaries | 18,600 |
Goods returned to H.O. | 3,000 | Rent | 3,600 |
Cash Sales | 52,500 | Debtors(Closing) | 29,400 |
Advertisement | 2,400 | Petty Cash (Closing) | 300 |
Cash received from debtors | 85,500 | Credit Sales | 85,200 |
Stock(Closing) | 19,500 |
|
|
Allowances to Customer | 600 |
|
|
|
|
|
|
SOLUTION:-
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 21,000 | By Branch Cash | 52,500 |
To Goods sent to sent Branch | 78,000 | By Goods sent to Branch | 3,000 |
To Branch Debtors | 1,500 | By Branch Debtors | 85,200 |
To Branch P&L (Transfer) | 59,700 | By Balance c/d | 19,500 |
TOTAL | 1,60,200 | TOTAL | 1,60,200 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 37,800 | By Branch Cash | 85,500 |
To Branch Stock (Credit Sales) | 85,200 | By Branch expenses Bad Debts 1,800 Allowances 600 Discount 4,200
| 6,600 |
|
| By Branch Stock (Returns) | 1,500 |
|
| By Balance c/d | 29,400 |
TOTAL | 1,23,000 | TOTAL | 1,23,000 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 6,600 | By Branch P&L | 31,500 |
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600
| 24,600 |
|
|
To Petty Expenses (600-300) | 300 |
|
|
|
|
|
|
TOTAL | 31,500 | TOTAL | 31,500 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 31,500 | By Branch Stock | 59,700 |
To General P&L (Bal Fig) | 28,200 |
|
|
TOTAL | 59,700 | TOTAL | 59,700 |
Q.5 (AT COST)
The following are the details of ‘Indore Branch’ for the year 2018
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Opening stock | 6,000 | Salaries | 2,000 |
Opening Petty Cash | 500 | Rent | 1,500 |
Opening Debtors | 8,000 | Closing Stock | 8,000 |
Goods sent to Branch | 24,000 | Cash sent to Branch | 2,200 |
Goods returned by Branch | 800 | Discount Allowed | 100 |
Remittance from Branch | 33,500 | Bad Debts | 150 |
Returns from Debtors | 2,000 | Commission Paid | 750 |
Collection from Debtors | 34,000 | Closing Petty Cash | 450 |
Cash Sales | 1,500 | Closing Debtors | 9,000 |
Prepare : (1) Branch Stock A/c (2)Branch Debtors A/c (3)Branch Expenses A/c
(4)Branch P&L A/c (5) Branch Cash (6)Goods sent to Branch A/c
SOLUTION:-
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 6,000 | By Branch Cash (Cash Sales) | 1,500 |
To Goods sent to sent Branch | 24,000 | By Goods sent to Branch | 800 |
To Branch Debtors(Return Inwards) | 2,000 | By Branch Debtors(Credit Sales) | 37,250 |
To Branch P&L (Transfer) | 15,550 | By Balance c/d | 8,000 |
TOTAL | 47,550 | TOTAL | 47,550 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 8,000 | By Branch Cash (Received from Debtors) | 34,000 |
To Branch Stock (Credit Sales) (Bal Fig) | 37,250 | Branch expenses Bad Debts 150 Discount 100 | 250 |
|
| By Branch Stock (Returns) | 2,000 |
|
| By Balance c/d | 9,000 |
TOTAL | 45,250 | TOTAL | 45,250 |
Dr. BRANCH CASH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance (Petty Cash) | 500 | By Branch Expenses Salaries 2,000 Rent 1,500 Commission 750 | 4,250 |
To Bank (Remittance) | 2,200 | By Bank (Remittance from Branch) | 33,500 |
To Branch stock (Cash Sales) | 1,500 | By Balance (Petty Cash) | 450 |
To Branch Debtors (Received) | 34,000 |
|
|
|
|
|
|
TOTAL | 38,200 | TOTAL | 38,200 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 6,600 | By Branch P&L | 31,500 |
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600
| 24,600 |
|
|
To Petty Expenses (600-300) | 300 |
|
|
|
|
|
|
TOTAL | 31,500 | TOTAL | 31,500 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 250 | By Branch P&L (Balance Transferred) | 4,500 |
To Branch Cash | 4,250 |
|
|
|
|
|
|
|
|
|
|
TOTAL | 4,500 | TOTAL | 4,500 |
Dr. GOODS SENT TO BRANCH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock | 800 | By Branch Stock | 24,000 |
To Purchase | 23,200 |
|
|
|
|
|
|
|
|
|
|
TOTAL | 24,000 | TOTAL | 24,000 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 4,500 | By Branch Stock (Gross Profit) | 15,550 |
To General P&L (Bal Fig) | 11,050 |
|
|
TOTAL | 15,550 | TOTAL | 15,550 |
Q.6 (AT INVOICE )
Mumbai Textile Mills Ltd has branch at Agra. Goods are invoiced to branch at cost plus 50%. Branch remits all cash received to the head office and all expenses are met by head office. From the following particulars, prepare the necessary accounts under the Stock and Debtors system to Show the Profit Earned at the Branch:
PARTICULARS | AMOUNT |
Stock on the 1st April,2013 (Invoice Price) | 93,000 |
Debtors on 1st April,2013 | 68,000 |
Goods Invoiced to Branch (Cost) | 3,40,000 |
Sales at Branch: |
|
Cash | 2,50,100 |
Credit | 3,10,000 |
Cash Collected from Debtors | 3,04,000 |
Goods Returned by Debtors | 12,000 |
Goods Returned by Branch to head office | 1,500 |
Shortage of Stock | 4,500 |
Discount Allowed to Customer | 2,000 |
Expenses at Branch | 54,000 |
SOLUTION :-
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 93,000 | By Branch Cash (Cash Sales) | 2,50,100 |
To Goods sent to sent Branch(3,40,000 X 150%) | 5,10,000 | By Branch Debtors(Credit Sales) | 3,10,000 |
To Branch Debtors | 12,000 | By Goods sent to Branch | 1,500 |
|
| By Branch Adjustment (Shortage) | 4,500 |
|
| By Balance c/d | 48,900 |
TOTAL | 6,15,000 | TOTAL | 6,15,000 |
Dr. BRANCH ADJUSTMENT A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock(Shortage) | 4,500 | By Stock Reserve(Loading on Opening Stock) | 31,000 |
To Goods Sent to Branch | 500 | By Goods Sent to Branch | 1,70,000 |
To Gross Profit c/d | 1,79,700 |
|
|
To Stock Reserve(Loading on Closing Stock) | 16,300 |
|
|
TOTAL | 2,01,000 | TOTAL | 2,01,000 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 54,000 | By Branch Stock (Gross Profit) | 1,79,700 |
To Discount | 2,000 |
|
|
To General P&L (Bal Fig) | 1,23,700 |
|
|
TOTAL | 1,79,700 | TOTAL | 1,79,700 |
Dr. GOODS SENT TO BRANCH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock | 1,500 | By Branch Stock | 5,10,000 |
To Branch Adjustment | 1,70,000 | By Branch Adjustment | 500 |
To Trading A/c(Bal Fig) | 3,39,000 |
|
|
|
|
|
|
TOTAL | 5,10,500 | TOTAL | 5,10,500 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 68,000 | By Branch Cash (Received from Debtors) | 3,04,000 |
|
| By Branch expenses (Discount) | 2,000 |
To Branch Stock (Credit Sales) | 3,10,000 | By Branch Stock (Returns) | 12,000 |
|
| By Balance c/d | 60,000 |
TOTAL | 3,78,000 | TOTAL | 3,78,000 |
Dr. BRANCH CASH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Sales | 2,50,100 | By Head Office Cash | 5,54,100 |
To Debtors | 3,04,000 | (Sent to HO) |
|
TOTAL | 5,54,100 | TOTAL | 5,54,100 |
