9 BRANCH ACCOUNTS

Question: What is branch?

Answer: Any establishment carrying on either the same or substantially the same activity as that
carried on by head office of the company sec 29 of the Companies Act, 1956
Question: What are the types of branches?
Dependent branches
Independent branches
Question: What are the classifications of branches?
1. Dependent Branch: the whole of the accounting records are kept at the head office and activities
controlled by head office. The types of dependent branches are
a. A branch set up merely for booking orders that are executed by the head office. Such a branch
only transmits orders to the head office
b. A branch established at a commercial centre for the sale of goods (wholesale) supplied by the
head office, and under its direction all collections are made by the H.O.; and
c. A branch for the retail sale of goods, supplied by the head office
2. Independent Branch: Branches which maintain independent accounting records, and
3. Foreign Branches
Question: What are the systems of accounting?
[CMA INTER D02 & D04]
Q: In respect of a Dependent Branch, the Head office may follow any of the four methods of
Accounting. Name these clearly.
A: The four methods of Accounting which the Head Office may follow in respect of Dependent
Branch are:
1. At Cost Debtors Method: Under this method a Branch is treated as a Simple Debtor. For each
Branch a Branch Account is opened.
2. At Cost Stock & Debtors Method: (a) Branch Stock A/c This a/c is like Trading A/c and it
shows Gross Profit (b) Branch P & L A/c This show Net Profit.
3. At Cost Memorandum Trading & P & L A/c: This word Memorandum indicate that this
A/c is not a part of Double Entry System. This account shows net profit.
4. At Selling Price Debtor Method: Under this method there is only one difference as compared
with Branch A/c maintained at Cost method. The difference is that opening stock at Branch,
Closing Stock at Branch, Goods sent by H.O. to Branch & Goods Returned by Branch to H.O.
will be entered Not at Cost, but at Invoice price.
Methods for Dependant Branch
1 Debtors System
2 Stock and Debtors System
3 Memorandum Trading and P/L System

Cost Price Model

Invoice Price Model

Question: What are the methods of charging goods to branches?

Goods may be invoiced to branches (1) at cost; or (2) at selling price; or (3) in case of retail branches,
at wholesale price.

Branch Accounts

9.1

[CMA INTER D08]

Q: Write short note on treatment of abnormal losses in Branch Account.
Answer: Abnormal losses arise due to loss of goods in transit or theft or pilferage at branch. Branch
stock Ac/ is credited with abnormal losses. This is necessary to find out of stock discrepancies for
other reason profit loading of abnormal losses is debited to Branch Adjustment A/c and Cost of goods
sold debited to Profit and Loss A/c.
Journal Entry for Abnormal Loss under Stock and Debtors System
Branch Adjustment A/c
Dr

Branch P/L A/c

Dr

To Branch Stock A/c

Note: Under debtors system, abnormal loss is not recorded.

Reasons for disagreement Adjustments
Goods in Transit: Goods dispatched by the Head Office and not yet received by the Branch and
vice versa.
Remittance in Transit: Amount remitted by the Head Office to the Branch and vice verse which
remain in transit.
Proxy Transactions: Sometimes remittances are received or made by the Head Office on behalf
of the Branch and vice versa, may go unrecorded at the other end, wherein they are normally
recorded.
Inter-branch transactions are usually adjusted as if they were entered into only with the head
office.
At the End of the Year : Closing Entries for stock and debtors system

Dr

Cr

1 Recording Closing Stock at Branch

Closing Stock at Branch Account (incl. Loading)

Dr

To Branch Stock Account

2 Excess of Sale Price over Invoice Price

Branch Stock Account

Dr

To Branch Adjustment Account

3 Recording Unrealised Profit on Closing Stock i.e. Stock Reserve

Branch Adjustment Account

Dr

To Stock Reserve (closing)

(after this entry, the Branch Adjustment Account will show Gross Profit
Nt: Stock Reserve on Opening Stock is credited to Branch Adjustment A/c)
4 Recording Gross Profit at Branch
Branch Adjustment Account

Dr

To Branch P & L Account

5 Depreciation on Branch Assets, (if any)

Branch Expenses Account

Financial Accounting

Dr

9.2

To Branch Assets Account

6 Transfer of Branch Expenses

Branch P & L Account

Dr

To Branch Expenses Account

7 Recording Net Profit at Branch

Branch P & L Account

Dr

To General P & L Account

Double Column method of recording transactions: (Dependent Branch stock &debtors system)
Cost Price Column [CP]
Invoice Price Column [IP]: They would balance by including the value of closing stock
provided there has been no physical loss of stocks.
Branch Account

To

Particulars

CP

IP

Balance b/d Op. Stock

Goods Sent to Branch

Gross Profit

Particulars

CP

IP

Cash Sales

Credit Sales

Balance c/d Cl. Stock

By

INCORPORATION OF BRANCH BOOKS IN H. O. BOOKS

Methods for Incorporation: (i) Transfer of Profit/Loss Method and (ii) Consolidation Method.
i.

TRANSFER TO PROFIT/LOSS METHOD

This will be followed when separate Profit & Loss Accounts and Balance Sheet are prepared for
the Branch and the Head office.
The profit / Loss for the period is transferred to the Head Office.

ii. CONSOLIDATION METHOD

Separate financial statements are not prepared. The Head Office prepares the consolidated
financial statements for the entity as a whole.
Balances in all the ledger accounts are transferred to the Head Office, where all the accounts are
consolidated and financial statements prepared for the whole entity.
Journal Entry at Branch
1

For Transfer of Assets and Expenses

H. O. A/c

Dr

For Transfer of Liabilities and Income

(Individual) Liability A/c

Dr

Dr

To (individual) Assets A/c

(Individual) Income A/c

To (individual) Expenses A/c

To H. O. A/c

Journal Entry at Head Office

1

For Transfer of Assets and Expenses

(Individual) Asset A/c

Branch Accounts

Dr

For Transfer of Liabilities and lncome

Branch A/c

Dr

9.3

(Individual) Asset A/c

Dr

To Branch A/c

To (Individual) Liability A/c

To (Individual) Income A/c

Net Effect: The books of accounts will be closed fully and will be restarted at the beginning of the
next year by passing the following entry:
(Individual) Asset A/c Dr.
To (Individual) Liability A/c
To HO A/c (Difference between Assets and Liabilities)
Question: Write a note on foreign branch
Answer: Foreign branches generally maintain independent and complete record of business
transacted by them in currency of the country in which they operate. Since the accounts are
maintained in Foreign Currency they have to be translated into Reporting Currency i.e. the
currency in which the Head Office transacts.
Question: What are the types of foreign branches?
1. Integral Foreign Operation (IFO): It is a foreign operation, the activities of which are an
integral part of those of the reporting enterprise.
2. Non-Integral Foreign Operation (NFO): It is a foreign operation that is not an Integral Foreign
Operation. The business of a NFO is carried on in a substantially independent way by
accumulating cash and other monetary items, incurring expenses, generating income and
arranging borrowing in its local currency.
Techniques for Foreign Currency Translation

Revenue
Items

B/S items

A -Monetary
B

Integral Foreign Operation

Non-Integral Foreign Operation

Rate at the time of transaction [weekly or

monthly average rate is permitted if there is
no significant variations in the rate]

Rate at the time of transaction

closing exchange rate

closing rate

[including contingent liability]

-Nonmonetary
--Purchased

Rate at the date of purchase

--Revalued
[fair value]

Rate at the date of valuation

-Inventory

Generally closing rate

[The cost of inventories is translated at the
exchange rates that existed when the cost of
inventory was incurred and realizable value
is translated applying exchange rate when
realizable value is determined]

Treatment of charged to profit and loss account

Financial Accounting

accumulated

in

foreign

9.4

currency translation reserve until

the disposal of net investment in
non-integral foreign operation

Exchange
difference

Question: What is net investment in non-integral foreign operation?

Answer: An item for which settlement is neither planned nor likely to occur in foreseeable future
which is in substance a net investment in non-integral foreign operation, which may be calculated as
all assets excluded trade receivable less outside liabilities excluding trade payable.
Question: What is disposal of net investment in non-integral foreign operation?
Answer: Disposal includes sale, liquidation, abandonment of foreign operation, etc
Question: What are the indicators of Non-Integral Foreign Operation?
Answer: Some of the indicators are listed below
No or less Control by reporting enterprises
Transactions with the reporting enterprises are a low proportion of the foreign operations
activities.
It raises finance independently and is in no way dependent on reporting enterprises.
Foreign operation sales are mainly in currencies other than reporting currency.
All the expenses by foreign operations are primarily paid in local currency
Day-to-day cash flow of the reporting enterprises is independent of the foreign enterprises cash
flows.
Sales prices of the foreign enterprises are not affected by the day-to-day changes in exchange rate
of the reporting currency of the foreign operation.
There is an active sales market for the foreign operation product.
Question: How to treat in case of change in classification?
Answer: Integral to Non-Integral
1. Translation procedure applicable to non-integral shall be followed from the date of change.
2. Exchange difference arising on the translation of non-monetary assets at the date of
reclassification is accumulated in foreign currency translation reserve.
Non-Integral to Integral
1. Translation procedure as applicable to integral should be applied from the date of change.
2. Translated amount of non-monetary items at the date of change is treated as historical cost.
3. Exchange difference lying in foreign currency translation reserve is not to be recognized as
income or expense till the disposal of the operation even if the foreign operation becomes integral.
PRACTICAL PROBLEMS
Debtors System/Stock and Debtors System:
[CA INTER M01]
Question 1: Widespread Ltd. invoices goods to its branch at cost plus 20%. The branch sells goods
for cash as well as on credit. The branch meets its expenses out of cash collected from its debtors and
cash sales and remits the balance of cash to head office after withholding 10,000 necessary for

Branch Accounts

9.5

meeting immediate requirements of cash. On 31st March, 2012 the assets at the branch were as
follows:
(000)
Cash in Hand
Trade Debtors
Stock, at Invoice Price
Furniture and Fittings

10
384
1,080
500

During the accounting year ended 31st March, 2013 the invoice price of goods dispatched by the head
office to the branch amounted to 1 crore 32 lakhs. Out of the goods received by it, the branch sent
back to head office goods invoiced at 72,000. Other transactions at the branch during the year were
as follows:

Cash Sales
Credit Sales
Cash collected by Branch from Credit Customers
Cash Discount allowed to Debtors
Returns by Customers
Bad Debts written off
Expenses paid by Branch

(000)
9,700
3,140
2,842
58
102
37
842

On 1st January, 2013 the branch purchased new furniture for 1 lakh for which payment was made by
head office through a cheque.
On 31st March, 2013 branch expenses amounting to 6,000 were outstanding and cash in hand was
again 10,000. Furniture is subject to depreciation @ 16% per annum on diminishing balance
method. Prepare Branch Account in the books of head office for the year ended 31.3.2013.
Answer: Debtors Method
In the Head Office Books Branch A/c for the year ended 31st March, 2013
To Balance b/d
Cash in hand
Trade debtors
Stock
Furniture and fittings
Goods sent to branch A/c
Bank A/c (Payment for furniture)
Balance c/d
Stock reserve (1,470 1/6)
Outstanding expenses
Profit and loss A/c
(Net Profit)

000 By Balance b/d

10
Stock reserve 1,080 1/6
384
Goods sent to branch A/c
1,080
(Returns to H.O.)
500
Goods sent to branch A/c
13,200
100
245
6
1,096

16,621

Financial Accounting

000
180
72
2,188

(Loading on net goods sent

to branch ( 13,128 1/6)
Bank (Remittance by BO)
11,700
Balance c/d
Cash in hand
10
Trade debtors
485
Stock
1,470
Furniture and fittings
516
16,621

9.6

WN1: Branch Stock A/c

To Opening Balance

1080 By Branch Cash (Sales)

Goods Sent to HO

13200

Sales Return

102

9700

Goods returned by BO

72

Branch Debtors

3140

Closing Balance

1470

14382

14382

WN2: Branch Debtors

To Balance b/d

384 By Branch Cash

To Branch Stock

3140

2842

Branch expenses [Discount]

Branch Stock [Return]

58
102

Branch Expenses [Bad Debt]

Balance c/d

37
485

3,524

3,524

WN3: Branch Cash to Calculate Remittance to HO

To Balance b/d

10 By Expenses

842

Sales

9700

Remittance branch

Cash

2842

Balance c/d

11700
10

12,552

12,552

WN4: Branch Furniture

To Opening Balance

500 By Depreciation (80 + 4)

Bank

100

84

Balance c/d

516

600

600

WN5: Invoice Price and Cost Price Calculation

Let Cost be
Less

100

Profit on cost

20

Invoice Price

120

Answer: under Stock and Debtors Method:

Branch Stock A/c
To Opening Balance
Goods Sent to HO
Sales Return

Branch Accounts

1080 By
13200
102 By

Branch Cash (Sales)

Goods returned by BO

9700
72

Branch Debtors

3140

Closing Balance

1470

9.7

14382

14382

Branch Adjustment
To Closing Stock
To Gross Profit

245 By
2123 By

Opening Stock(loading)
Goods Sent (consignment)

2368

180
2188
2368

Branch Debtors
To Balance
To Branch Stock

384 By
3140

Branch Cash

2842

Branch expenses [Discount]

Branch Stock [Return]

58
102

Branch Expenses [Bad Debt]

Balance C/d
3,524

37
485
3,524

Branch Cash
To Balance

10 By

Exp

Sales

9700

Remittance branch

Cash

2842

Balance c/d

12,552

842
11700
10
12,552

Branch Expenses
To Discount

58 By

Bad Debt

37

Expenses

842

Outstanding Expenses
Depreciation

Branch Profit and Loss

1027

6
84
1027

1027

Branch Furniture
To Opening Balance
Bank

500 By

Depreciation (80 + 4)

100

Bal C/d

600

84
516
600

Branch Profit and Loss

To Branch Expenses
Net Profit

1027 By

Branch Adjustment a/c (GP)

2123

1096
2123

2123

Branch Stock A/c

To Opening Balance
Goods Sent to HO
Sales Return

Financial Accounting

1080 By Branch Cash (Sales)

13200

Goods returned by BO

102 By Branch Debtors

9700
72
3140

9.8

Closing Balance
14382

1470
14382

Branch Adjustment
To Closing Stock
To Gross Profit

245 By Opening Stock(loading)

180

2123 By Goods Sent (consignment)

2188

2368

2368

Under Double Column Method

Branch Account
Particulars

CP

To Opening Balance
Goods Sent to HO

900

Particulars

1080 By Branch Cash (Sales)

11,000 13200

Sales Return
Gross Profit

IP

102

Branch Debtors

102

CP

IP

9700

9700

3140

3140

60

72

1,225

1470

Goods returned by BO

2,123

Closing Balance

14,125 14382

14,125 14382

Memorandum Trading and P/L Method

Trading and Profit and Loss A/c
To Opening Stock
Goods Sent
Sales Return

1080 By Sales
13128
102

Unload the reserve

Closing Stock
Gross Profit

Cash

9700

Credit

3140

Unload the reserve

245
2123

Opening Stock
Goods sent

2188

Closing Stock

1470

16,678
To Discount

58 By Gross Profit

Bad Debt

37

Expenses

842

Outstanding Expenses
Depreciation
Net profit

180

16,678
2,123

6
84
1096
2,123

2123

[CA INTER M06]

Question 2: Stock and Debtors System: Concept & Co., with its Head Office at Mumbai has a
branch at Nagpur. Goods are invoiced to the Branch at cost plus 33 1/3%. The following
information is given in respect of the branch for the year ended 31 st March, 2013:

Branch Accounts

9.9


Goods sent to Branch (Invoice Price)
Stock at Branch on 1.4.2012 (Invoice Price)
Cash sales

4,80,000
24,000
1,80,000

Return of goods by customers to the Branch

6,000

Branch expenses (paid in cash)

53,500

Branch debtors balance on 1.4.2012

30,000

Bad debts

1,500

Branch debtors cheques returned dishonoured

5,000

Collection from Debtors

2,70,000

Stock at Branch on 31.3.2013 (Invoice Price)

48,000

Branch debtors balance on 31.3.2013

36,500

Discount allowed

1,000

Prepare, under the Stock and Debtors system, the following Ledger Accounts in the books of the
Head Office:
1. Nagpur Branch Stock Account
2. Nagpur Branch Debtors Account
3. Nagpur Branch Adjustment Account.
Also compute shortage of Stock at Branch, if any.
Answer: Stock and Debtors System
In the books of head office: Nagpur Branch Stock Account

Debit
To Balance b/d
Goods sent
Branch
Branch Debtors

Credit

24,000 By Bank A/c (Cash Sales)

1,80,000
4,80,000
Branch Debtors (Credit Sales) 2,80,000
6,000
Stock shortage [Balance]
Branch P/L a/c
1500
Branch Adjustment a/c 500
2,000
Balance c/d
48,000
5,10,000
5,10,000
Nagpur Branch Debtors Account

Balance b/d
Bank (dishonour of cheques)
Branch Stock A/c [Balance]2

30,000
5,000
2,80,000

Bank A/c (Collection)

Branch Stock A/c
Bad debts
Discount allowed
Balance c/d

3,15,000
1
2

2,70,000
6,000
1,500
1,000
36,500
3,15,000

Loading on opening stock = 24,000 25% = 6,000

The balancing figure of Branch Debtors Account is taken as credit sales

Financial Accounting

9.10

Nagpur Branch Adjustment Account

Branch Stock (loading of loss)
[Balance]
Stock Reserve1
Gross Profit c/d3

Branch Stock A/c (Cost of loss)

Branch Expenses 4
Net Profit (General P & L A/c)

500

Stock Reserve A/c

12,000
Goods sent to Branch A/c2
1,13,500
1,26,000
Profit and Loss A/c
1,500
Gross Profit b/d
56,000
56,000
1,13,500

6,000
1,20,000
1,26,000
1,13,500

1,13,500

Note: Loading is % on Cost or 25% on invoice price

[CA INTER M96 & M03]
Question 3: Adjustment entry for inter-branch transfer
Show adjustment Journal entry in the books of Head Office at the end of April, 20 13 for
incorporation of inter-branch transactions assuming that only Head Office maintains different
branch accounts in its books.
A.
(1)
(2)
(3)
(4)
B.
(1)
(2)
C.
(1)
(2)
D.
(1)
(2)
(3)

Delhi Branch:
Received goods from Mumbai 35,000 and 15,000 from Kolkata.
Sent goods to Chennai 25,000, Kolkata 20,000.
Bill Receivable received 20,000 from Chennai.
Acceptances sent to Mumbai 25,000, Kolkata 10,000.
Mumbai Branch (apart from the above):
Received goods from Kolkata 15,000, Delhi 20,000.
Cash sent to Delhi 15,000, Kolkata 7,000.
Chennai Branch (apart from the above):
Received goods from Kolkata 30,000.
Acceptances and Cash sent to Kolkata 20,000 and 10,000 respectively.
Kolkata Branch (apart from the above):
Sent goods to Chennai 35,000.
Paid cash to Chennai 15,000.
Acceptances sent to Chennai 15,000.

Answer:
Journal entry in the books of Head Office
Date
Particulars
Dr.
Cr.
30.4.03 Mumbai Branch Account
Dr 3,000
Chennai Branch Account
Dr 70,000
To Delhi Branch Account
15,000
To Kolkata Branch Account
58,000
Loading on Closing Stock = 48,000 25% = 12,000
Loading on goods sent = 4,80,000 25% = 1,20,000
3
Gross Profit: (Total sales Sales Return) = {(180,000+ 280,000)-6,000} =113,500
4
Total Branch Expenses = Cash expenses + Bad debt + Discount allowed [53,500 +1,500 +1,000 =56,000]
1
2

Branch Accounts

9.11

WN: Inter Branch transactions [ 000]

A
(1)
(2)
(3)
(4)
B
(1)
(2)
C
(1)
(2)
D
(1)
(2)
(3)

Delhi Branch
Received goods
Sent goods
Received Bills receivable
Sent acceptance
Mumbai Branch
Received goods
Sent cash
Chennai Branch
Received goods
Sent cash and acceptances
Kolkata Branch
Sent goods
Sent cash
Sent acceptances
Balance c/d

Delhi
Mumbai Chennai Kolkata
Dr Cr Dr Cr Dr Cr Dr Cr
50
35
15
45
25
20
20
20
35 25
10
20

35

15

15
22

7
30

30
30

30

35
15
15
15
100 100

60

35
15
15

3
70 58
60 120 120 125 125

[CA INTER N04]

Question 4: Adjustment entries for branch a/c:
Give Journal Entries in the books of Branch A to rectify or adjust the following:
1. HO expenses 3,500 allocated to the Branch, but not recorded in the Branch Books.
2. Depreciation of branch assets, whose accounts are kept by the HO not provided earlier for
1,500.
3. Branch paid 2,000 as salary to a H.O. Inspector, but the amount paid has been debited by
the Branch to Salaries account.
4. H.O. collected 10,000 directly from a customer on behalf of the Branch, but no intimation
to this effect has been received by the Branch.
5. A remittance of 15,000 sent by the Branch has not yet been received by the H.O.
6. Branch A incurred advertisement expenses of 3,000 on behalf of Branch B.
Answer:
Journal Entries

1
2
3
4

In the books of Branch A

Particulars
Dr./
Expenses a/c
Dr 3,500
To Head office a/c
Depreciation a/c
Dr. 1,500
To Head office a/c
Head office a/c
Dr 2,000
To Salaries a/c
Head office a/c
Dr. 10,000
To Debtors a/c

Financial Accounting

Cr./
1
3,500
2
1,500
3
2,000
4
10,000

In the books of Head Office

Particulars
Dr./
Branch Office a/c
Dr 3,500
To Expenses a/c
Branch Office a/c
Dr 1,500
To Depreciation a/c
Salaries a/c
Dr. 2,000
To Branch Office a/c
Cash a/c
Dr. 10,000
To Branch Office a/c

Cr./
3,500
1,500
2,000
10,000

9.12

No entry in branch books

6 Head Office a/c

To Cash a/c

Dr

3,000

5 Cash in transit a/c

To Branch Office a/c
6 Branch B a/c
3,000
To Branch A a/c

Dr 15,000
15,000
Dr

3,000
3,000

[CA INTER N97, 10 marks] [CMA INTER D01]

Question 5: Mr. Shiv Sunder of Pune has a branch at Dibrugarh. The branch does not maintain
separate books of accounts. The branch has the following assets and liabilities on 31 st August, 2001
and 30 September 2001:
31.08.2001 []
30.09.2001 []
Stock of tea
1,80,000
1,50,000
Advance to suppliers
5,00,000
4,50,000
Bank balance
75,000
1,00,000
Prepaid expenses
10,000
12,000
Outstanding expenses
13,000
11,000
Creditors of purchases
3,00,000 To be ascertained
During the month, Dibrugarh branch
a) Received by electronic mail transfer 10,00,000 from Pune Head Office.
b) Purchased tea worth 12,00,000
c) Sent tea costing 12,30,000 to Pune, freight of 80,000 being payable at the destination by the
receiver;
d) Spent 25,000 on office expenses;
e) Paid 3,00,000 as advance to suppliers;
f) Paid 6,50,000 to suppliers in settlement of outstanding dues.
In addition Mr. Shiv Sunder informs you that the Pune office had directly paid 3,50,000 to Dibrugarh
suppliers by cheques drawn on bank accounts in Pune during the month.
Mr. Shiv Sunder informs you that for the purpose of accounting Dibrugarh branch is not treated as an
outsider. He wants you to write the detailed accounts relating to transactions of the Dibrugarh branch,
namely Dibrugarh Tea Stock A/c, Advance to Suppliers A/c, Suppliers A/c, Bank A/c and Branch
Expenses A/c, as would appear in the books of Pune Head Office.
Answer: In the Books of Pune Head Office
Dibrugarh Tea Stock A/c
Date
Particulars
Amount Date
Particulars
Amount
01.09.01 To Balance b/d 1,80,000 30.09.01 By Tea in Transit to Pune 12,30,000
30.09.01
Purchases
12,00,000 30.09.01
Balance c/d
1,50,000
13,80,000
13,80,000
Advance to Supplier A/c
Date
Particulars
Amount
Date
Particulars
01.09.01 To Balance b/d
5,00,000 30.09.01 By Suppliers adjustment (b/f)
30.09.01
Dibrugarh Bank 3,00,000 30.09.01
Balance c/d
8,00,000

Amount
3,50,000
4,50,000
8,00,000

Dibrugarh Suppliers A/c

Date
Particulars
Amount
Date
Particulars
Amount
03.09.01 To Advance to Supplier
3,50,000 01.09.01 By Balance b/d
3,00,000
30.09.01
Dibrugarh Bank A/c
6,50,000 30.09.01
Tea Stock A/c 12,00,000
(Purchases)

Branch Accounts

9.13

30.09.01
30.09.01

Pune Bank A/c

Balance c/d (b/f)

Date
Particulars
01.09.01 To Balance b/d
30.09.01
Pune Bank A/c

3,50,000
1,50,000
15,00,000

15,00,000

Dibrugarh Bank A/c

Amount
Date
Particulars
75,000 30.09.01 By Advance to Supplier A/c
10,00,000 30.09.01
Supplier A/c
Expenses A/c
Balance c/d
10,75,000

Amount
3,00,000
6,50,000
25,000
1,00,000
10,75,000

Branch Expenses A/c

Date
Particulars
Amount
Date
Particulars
Amount
01.09.01 To Balance b/d
10,000 01.09.01 By Balance b/d
13,000
30.09.01
Dibrugarh Bank
25,000 30.09.01
Branch P/L b/fd
21,000
30.09.01
Balance c/d
11,000 30.09.01
Balance c/d
12,000
46,000
46,000
[CA-INTER M02]
Question 6: Final A/c System: On 31st March, 2013 Kanpur Branch submits the following Trail
Balance to its Head Office at Lucknow:
Debit Balances

in lacs

Furniture and Equipment

Depreciation on furniture
Salaries
Rent

18
2
25
10

Advertising
Telephone, Postage and Stationery
Sundry Office Expenses
Stock on 1st April, 2012
Goods Received from Head Office

6
3
1
60
288

Debtors
Cash at bank and in hand
Carriage Inwards

20
8
7
448

Credit Balances
Outstanding Expenses
Goods Returned to Head Office
Sales
Head Office

in lacs
3
5
360
80

448

Additional Information:
Stock on 31st March, 2013 was valued at 62 lacs. On 29th March, 2013 the Head Office dispatched
goods costing 10 lacs to its branch. Branch did not receive these goods before 1st April, 2013.
Hence, the figure of goods received from Head Office does not include these goods. Also the head
office has charged the branch 1 lac for centralised services for which the branch has not passed the
entry.
You are required to:
1. Pass Journal Entries in the books of the Branch to make the necessary adjustments

Financial Accounting

9.14

2. Prepare Final Accounts of the Branch including Balance Sheet, and

3. Pass Journal Entries in the books of the Head Office to incorporate the whole of the Branch Trial
Balance.
Answer:
Journal entry in the books of Branch Office
Date
Particulars
Dr. Cr.
Goods in Transit A/c Dr 10
To Head Office A/c
10
Expenses A/c
To Head Office A/c

Dr

1
1

Trading and Profit & Loss Account of the Branch for the year ended 31st March, 2013
in lacs
60 By Sales
288
Closing Stock
5 283
7
72
422

To Opening Stock
Goods received from HO
Less: Returns
Carriage Inwards
Gross Profit c/d
Salaries

25

Depreciation on Furniture
Rent
Advertising
Telephone, Postage & Stationery
Sundry Office Expenses
Head Office Expenses
Net Profit Transferred HO

2
10
6
3
1
1
24
72

in lacs
360
62

422

Gross Profit b/d

72

72

Balance Sheet as on 31st March, 2013

Liabilities
Head Office
Add : Goods in transit
Head Office
Expenses
Net Profit
Outstanding Expenses

in lacs
80
10
1
24

115
3

Assets
in lacs
Furniture & Equipment
20
Less : Depreciation
2 18
Stock in hand
62
Goods in Transit
10
Debtors
20
Cash at bank and in hand
8

118

118

Journal entry in the books of Head Office

Particulars
Dr.
Cr.
Branch Trading A/c
Dr
355
To Branch A/c
355
[Opening stock + Goods received from HO + carriage inwards] (60+288+7)

Branch Accounts

9.15

Branch A/c
Dr
427
To Branch Trading A/c
[Total sales + closing stock + Goods returned to HO] [360+62+5]
Branch Trading A/c
Dr
To Branch Profit and Loss A/c
(Gross profit credited to Branch Profit and Loss Account)

72

Branch Profit and Loss A/c

To Branch A/c
(Total of branch expenses [25+16+3+1+1+2])

48

427

72

Dr

48

Branch Profit and Loss A/c

Dr
To Profit and Loss A/c
(Net profit at branch credited to (general) Profit & Loss A/c)

24

Branch Furniture & Equipment

Dr
Branch Stock
Dr
Branch Debtors
Dr
Branch Cash at Bank and in Hand
Dr
Goods in Transit
Dr
To Branch A/c
(Incorporation of different assets at the branch in H.O. books)

18
62
20
8
10

Branch A/c
Dr
To Branch Outstanding Expenses
(Incorporation of Branch Outstanding Expenses in H.O. books)

24

118

[CA INTER N06]

Question 7: Final A/c System: M/s Shah & Co. commenced business on 1.4.2012 with Head Office
at Mumbai and a Branch at Chennai. Purchases were made exclusively by the Head Office, where the
goods were processed before sale. There was no loss or wastage in processing. Only the processed
goods received from Head Office were handled by the Branch. The goods were sent to branch at
processed cost plus 10%. All sales [whether by Head Office or by the Branch] were at uniform gross
profit of 25% on their respective cost
Following is the Trial Balance as on 31.3.2013.
Head Office
Dr.
Capital
Drawings
Purchases
Cost of processing
Sales
Goods sent to Branch
Administrative expenses
Selling expenses
Debtors

Financial Accounting

Cr.
3,10,000

Branch
Dr.

Cr.

55,000
19,69,500
50,500
12,80,000
9,24,000
1,39,000
50,000
3,09,600

8,20,000
15,000
6,200
1,13,600

9.16

Branch Current account

Creditors
Bank Balance
Head Office Current account
Goods received from H.O.

3,89,800
6,01,400
1,52,000

10,800
77,500
2,61,500

8,80,000
31,15,400 31,15,400 10,92,300 10,92,300

Following further information is provided:

1. Goods sent by Head Office to the Branch in March, 2013 of 44,000 were not received by
the Branch till 2.4.2013.
2. A remittance of 84,300 sent by the Branch to Head Office was also similarly not received
upto 31.3.2013.
3. Stock taking at the Branch disclosed a shortage of 20,000 (at selling price).
4. Cost of unprocessed goods at Head Office on 31.3.2013 was 1,00,000.
5. Prepare Trading and Profit and Loss account in columnar form and Balance Sheet of the
business as a whole as at 31.3.2013.
Answer:
Trading and P/L A/c for the year ended 31st March, 2005 in the Books of Shah & Co.
Particulars
H.O.
Branch
Total
H.O.
Branch
Total

Purchases
19,69,500
19,69,500 Sales
12,80,000 8,20,000 21,00,000

Cost
of
50,500
50,500 Goods sent
9,24,000

processing
to Branch
Goods
Stock
16,000
16,000

received
shortage
from H.O.
8,80,000
Goods
in
44,000

transit
Gross profit 3,40,000 1,64,000 5,04,000 Closing
c/d
stock:
Processed
56,000 2,08,000 2,64,000
goods
Unprocessed
1,00,000
1,00,000
goods
23,60,000 10,44,000 25,24,000
23,60,000 10,44,000 25,24,000
Admn.
1,39,000
15,000 1,54,000 Gross profit
3,40,000 1,64,000 5,04,000
Expenses
b/d
Selling
50,000
6,200
56,200
Expenses
Stock
16,000
16,000

shortage
Stock
22,909
22,909

reserve
Net profit
1,28,091 1,26,800 2,54,891
3,40,000 1,64,000 5,04,000
3,40,000 1,64,000 5,04,000

Branch Accounts

9.17

Liabilities
Capital
Add: Net profit
Less: Drawings
Creditors:
H.O.
Branch

Balance Sheet as at 31st March, 2005

Assets
3,10,000
Debtors
2,54,891
H.O.
5,64,891
Branch
55,000 5,09,891 Closing stock:
Processed goods
6,01,400
H.O.
10,800 6,12,200
Branch
Less: Stock reserve
Unprocessed goods
Bank Balance
H.O.
Branch
Goods in transit
Less: Stock reserve
Cash in transit

3,09,600
1,13,600

56,000
2,08,000
2,64,000
18,909

2,45,091
1,00,000
1,52,000
77,500

44,000
4,000

11,22,091

40,000
84,300
11,22,091

WN 1: Calculation of Closing Stock

1.
Stock at Head Office
Less

Cost of goods processed (19,69,500 + 50,500 1,00,000)

19,20,000
Cost of goods sent to Branch: 924,000X100/110 8,40,000
Cost of goods sold 12,80,000100/125
10,24,000 18,64,000
Stock of processed goods with H.O.
56,000
2.

Less

Less

Stock at Branch

Goods received from H.O. (at invoice price)

Invoice value of goods sold: 820,000100/125
Invoice value of stock shortage:20,000100/125
Stock at Branch at invoice price
Stock Reserve:208,00010/110
Stock of processed goods with Branch (at cost)

8,80,000
6,56,000
16,000

WN2: Stock Reserve:

Unrealised profit on Branch stock: 208,00010/110
Unrealised profit on goods in transit: 44,00010/110

6,72,000
2,08,000
18,909
1,89,091

18,909
4,000
22,909

[CMA INTER D02]

Question 8: From the following information, prepare Reconciliation of Head Office Account in
Branch Books and of the Branch Account in the Head Office Books; and the Trading and Profit &
Loss Account of the Head Office for the year ended 31st December, 2001.

Opening Stock
Purchases
Sales

Financial Accounting

Head Office [] Branch []

10,000
4,500
1,15,000
--2,05,000
1,55,000

9.18

Other Expenses
Closing Stock

15,200
5,200

6,200
3,100

The Branch books show the Head Office Account at 9,000 (Cr) and the Head Office books show the
Branch Accountant as 24,000 (Dr). The Branch receives all its supplies from the Head Office, which
are invoiced at 25% over cost. During the year, the Head Office sent invoices to the Branch to the
tune of 1,04,500. The Head Office credits its Sales Account with the invoice price of the goods sent
to the Branch.
The Head Office billed the Branch for 12,000 on 31st December, 2001 representing the Branchs
share of the expenses incurred by the Head Office. The said expenses had not been recorded in the
books of the Branch.
The expenses of the Branch are met by the Head Office from time to time for which amounts are sent
in advance to the Branch. A sum of 3,000 sent to the Branch by the Head Office on 29 th December,
2001 in this connection, was received by the Branch on 3rd January, 2002.
In Branch Books Head Office A/c
Date
Particulars
Amount
Date
Particulars
31.12.01 To Balance c/d
24,000 01.01.01 By Balance b/d
Cash in Transit A/c
Branch Expenses
24,000
In Head Office Books Branch A/c
Date
Particulars
Amount
Date
Particulars
31.12.01 To Balance b/d
24,000 31.12.01 By Balance c/d
24,000
01.01.02
Balance b/d
24,000

Particulars
To Balance b/d
Sales A/c

Debtors A/c
Amount
Particulars
1,34,400 By Cash A/c (b/f)
6,72,000
8,06,400

Amount
9,000
3,000
12,000
24,000

Amount
24,000
24,000

Amount
6,33,600
1,72,800
8,06,400

Trading and Profit & Loss Accounts

H.O.
Branch
H.O.
Branch
To Opening stock
10,000
4,500 By Sales
2,05,000 1,55,000
Purchase
1,15,000
-Closing Stock
5,200
3,100
Goods Sent to Branch
-- 1,04,500
Goods Profit
85,200
49,100
2,10,200 1,58,100
2,10,200 1,58,100
Other Expenses
15,200
Gross Profit
85,200
49,100
Stock Reserve
620
6,200
Stock Reserve
900
Expenses by H.O.
-12,000
Net Profit
70,280
30,900
86,100
49,100
86,100
49,100
[CA INTER M95] [CMA RTP D11]
Question 9: Foreign Branch: S & M Ltd., Bombay, have a branch in Sydney, Australia. At the end
of 31st March, 2013, the following ledger balances have been extracted from the books of the
Bombay Office and the Sydney Office:

Branch Accounts

9.19

Bombay HO in 000
Debit
Share Capital
Reserves and Surplus
Land
Buildings (Cost)
Buildings Dep. Reserve
Plant & Machinery (Cost)
Plant & Machinery Depreciation Reserve
Debtors / Creditors
Stock (1.4.94)
Branch Stock Reserve
Cash & Bank Balances
Purchases / Sales
Goods sent to Branch
Managing Directors salary
Wages & Salaries
Rent
Office Expenses
Commission Receipts
Branch / H.O. Current A/c

500
1,000

2,500

280
100

10
240

30
75

25

120
4,880

Credit
2,000
1,000

200

600
200

520
100

256

4,880

Sydney BO A$
Debit

200

60
20

10
20
5

45
12
18

390

Credit

130
30

123

100
7
390

The following information is also available:

1. Stock as at 31.3.13 :
a. Bombay 1,50,000
b. Sydney A $ 3,125
2. Head Office always sent goods to the Branch at cost plus 25%.
3. Provision is to be made for doubtful debts at 5%.
4. Depreciation is to be provided on buildings at 10% and on plant and machinery at 20% on written
down values.
5. The Managing Director is entitled to 2% commission on net profits.
6. Incometax is to be provided at 47.5%.
You are required:
1. To convert the Branch Trial Balance into rupees; use the following rates of exchange
Opening rate A$ = 20
Average rate A$ = 22
Closing rate

A$ = 24

Fixed Assets

A$=18

2. To prepare the Trading and Profit & Loss Account for the year ended 31st March, 2013 showing
to the extent possible H.O. results and Branch results separately. (Balance Sheet not required.)
in thousands
Plant & Machinery (Cost)
Plant & Machinery Depreciation Reserve
Debtors / Creditors

Financial Accounting

Bombay HO in 000
Debit
2,500

280

Credit

600
200

Sydney BO A$
Debit
200

60

Credit

130
30

9.20

Stock (1.4.94)
Cash & Bank Balances
Purchases / Sales
Goods sent to Branch
Wages & Salaries
Rent
Office Expenses
Commission Receipts
Branch / H.O. Current A/c

520
100

256

4,880

100
10
240

75

25

120
4,880

123

100
7
390

20
10
20
5
45
12
18

390

Answer: (a) S & M Ltd. Sydney Branch TB (in 000 Rupees)As on 31st March, 1913
In
Rate per
In A$
A$
Dr. Cr.
Dr.
Cr.
Plant & Machinery (cost)
Plant & Machinery Dep. Reserve
Debtors / Creditors
Stock (1.4.94)
Cash & Bank Balances
Purchase / Sales
Goods received from H.O.
Wages & Salaries
Rent
Office expenses
Commission Receipts
H.O. Current A/c

200

60
20
10
20
5
45
12
18

390

130
30

123

100
7
390

HR
HR
CR
AR
CR
AR
Act
AR
AR
AR
AR
Act

18
18
24
20
24
22
22
22
22
22
-

Exchange loss (balancing figure)

36,00
23,40
14,40 7,20
4,00
2,40
4,40 27,06
1,00
9,90
2,64
3,96
22,00
1,20
78,70 80,86
2,16
80,86 80,86

[HR = Historical Rate, OR = Opening Rate, CR = Closing Rate, AR = Average Rate and Act =
Actual]
(b) Trading and P/L A/ct for the year ended 31st March, 1913 (in thousands)
To Opening Stock
Purchases
Goods received
from Head Office
Gross profit c/d
Wages & Salaries
Rent

Branch Accounts

H.O. Branch Total

1,00
4,00
5,00 By
2,40
4,40
6,80

1,00
1,00
4,30
7,70
75
-

18,41
27,81
9,90
2,64

22,71
35,51
10,65
2,64

Sales
Goods sent to
Branch
Closing Stock

Gross Profit B/d

Commission
receipts

H.O. Branch Total

5,20
27,06 32,26
1,00

1,00
1,50

75

2,25

7,70
4,30
2,56

27,81
18,41
22,00

35,51
22,71
24,56

9.21

Office expenses
Provision
for
RDD
Depreciation
(WN1)
Balance c/d

25
14

3,96
72

4,21
86

4,60

2,52

7,12

1,12
6,86

20,67
40,41

21,79
47,27

6,86

40,41

47,27

General Profit and Loss A/c

To Exchange loss
Branch Stock Reserve 751/5
MDs Remuneration
Salary
30
Commission (WN1)
41
Provision for Income-tax (WN1)
Balance c/d

2,16 By Balance b/d

15
Branch Stock reserve

21,79
4

71
934
947
21,83

21,83

Balance Sheet
Liabilities
S. Capital
Reserves and Surplus
Net Profit

HO

Creditors
Branch Stock Reserve

200

MDs Commission
Provision for Taxation

Assets
HO BO
2000 Land
1,000 Building
1000
947 Less:
Provision
for
200
depreciation
720
920
800
15 Less: Current Depreciation
80
(10%)
41
720
934 Plant and Machinery
2500 3600
Less:
Provision
for
600 2340
depreciation
1900 1260
Less: Current Depreciation 380 252
(20%)
1520 1008
280 1440
Debtors
Less: Provision for Doubtful
14
72
Debts
266 1368
Cash
10 240
Stock in trade
150
75
5857

BO

500

720

2528

1634
250
225
5857

WN1: Calculation of Managing Directors Commission : in thousands

Profit before adjustment

Financial Accounting

21,79

9.22

Add

Provision for doubtful debts

86
22,65

Less

Branch stock reserve [15-4]

Exchange loss
Profit u/s 349
Commission @ 2%
WN2: Calculation of provision for Income tax :
Profit u/s 349 as computed above
Less
MDs remuneration: Salary
MDs Commission
Profit before tax
Provision for tax @ 47.5%

11
2,16

2,27
20,38
41

(approx)

20,38
41
30

71
19,67

(approx)

934

Note : Translation of financial statements of foreign operations, AS 11:

Method of Classification
1 Integral
2 Non-integral

Accounting Treatment
Exchange difference Adjusted in P/L a/c
Exchange difference shown in B/S until the sale of the division

[CMA RTP J10]

Question 10: A head office sends goods to its branch at 20% less than the list price. Goods are
sold to customers at cost plus 100%. From the following particulars, ascertain the profit made
at the head office:
Head Office [] Branch Office []
Purchases
2,00,000
--Goods sent to/Received by Branch (Invoice Price)
80,000
--Sales to Customers
1,70,000
80,000
A:
Dr
Particulars
To Purchase
Goods Sent to BO
Gross Profit
[80,00020%]

HO []
2,00,000
1,15,000
3,15,000

Stock reserve2

Trading Account
BO []
Cr
Particular
By Sales
80,000
Goods sent to BO
16,000
Closing Stock [Balance]1
96,000
General P/L A/c
6,000
Gross Profit HO

HO []
1,70,000
80,000
65,000

BO []
80,000

3,15,000

96,000

16,000

1,15,000

Closing stock
at HO

=
=

Opening
stock
Nil

Closing stock at BO

=
=

Purchases

2,00,000

Opening stock
Nil

+
+

Cost of
goods sent
100
80,000160

Cost of goods sent

80,000

Cost of
goods sold
100
1,70,000200

65,000

Cost of goods sold

100

80,000160

16,000

60

Stock reserve [unrealized profit] = 16,000160 = 6,000

Branch Accounts

9.23

Net Profit

1,25,000
1,31,000

Gross Profit BO

16,000

1,31,000
1,31,000

Working Notes
Calculation of Cost-Price relationship
Cost Price
Add Wholesale Profit (Balance)
Wholesale Price
Add Retail Profit (20% of 200)
List Price

100
60
160
40
200

[CA INTER M99]

Question 11: Foreign Branch: Carlin & Co. has head office at New York (U.S.A.) and branch at
Mumbai (India). Mumbai branch furnishes you with its trial balance as on 31st March, 2013 and the
additional information given thereafter:
in 000
Stock on 1st April, 2012
Purchases and sales
Sundry Debtors and creditors
Bills of exchange
Wages and salaries
Rent, rates and taxes
Sundry charges
Computers
Bank balance
New York office a/c

Dr.
Cr.
300

800 1,200
400
300
120
240
560

360

160

240

420

1,620
3,360 3,360

Additional information:
1. Computers were acquired from a remittance of US $ 6,000 received from New York head office
and paid to the suppliers. Depreciate computers at 60% for the year.
2. Unsold stock of Mumbai branch was worth 4,20,000 on 31st March, 2013.
3. The rates of exchange may be taken as follows :
on 1.4.2012 @ 40 per US $
on 31.3.2013 @ 42 per US $
average exchange rate for the year @ 41 per US $
4. Conversion in $ shall be made upto two decimal accuracy.
You are asked to prepare in US dollars the revenue statement for the year ended 31st March, 2013 and
the balance sheet as on that date of Mumbai branch as would appear in the books of New York head
office of Carlin & Co. You are informed that Mumbai branch account showed a debit balance of US $
39609.18 on 31.3.2013 in New York books and there were no items pending reconciliation.

Financial Accounting

9.24

Answer: Carlin & Co. Ltd. Mumbai Branch Trial Balance in (US $) as on 31st March, 2013
Dr
Cr
Rate
Dr
Cr
in 000

In $

Stock on 1st April, 1998

Purchases and sales
Sundry Debtors and creditors
Bills of exchange
Wages and salaries
Rent, rates and taxes
Sundry charges

300

800 1,200
400
300
120
240
560

360

160

OR
AR
CR
CR
AR
AR
AR

40 7,500.00

41 19,512.20 29,268.29
42 9,523.81 7,142.86
42 2,857.14 5,714.29
41 13,658.54

41 8,780.49

41 3,902.44

Computers
Bank balance
New York office a/c

240

420

1,620

Act
CR
Act

6,000.00
42 10,000.00

3,360 3,360

39,609.18

81,734.62 81,734.62

[OR = Opening Rate, CR = Closing Rate, AR = Average Rate and Act = Actual]
Trading and Profit & Loss Account for the year ended 31st March, 2013
US $
To Opening Stock
7,500.00 By
Purchases
19,512.20
Wages and salaries
13,658.54
40,670.74
Gross Loss b/d
1,402.45
Rent, rates and taxes
8,780.49
Sundry charges
3,902.44
Depreciation on computers 3,600.00
(US $ 6,000 0.6)
17,685.38

Sales
Closing stock
Gross Loss c/d
Net Loss

US $
29,268.29
10,000.00
1,402.45
40,670.74
17,685.38

17,685.38

Balance Sheet of Mumbai Branch as on 31st March, 2013

Liabilities
New York Office A/c
Less: Net Loss
Sundry creditors
Bills payable

Branch Accounts

US $

Assets
US $
US $
39,609.18
Computers
6,000.00
17,685.38 21,923.80 Less: Depreciation 3,600.00 2,400.00
7,142.86 Closing stock
10,000.00
5,714.29 Sundry debtors
9,523.81
Bank balance
10,000.00
Bills receivable
2,857.14
34,780.95
34,780.95

9.25