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STUDY NOTE - 5
BRANCH ACCOUNTS
● Study Note includes : Branch including Foreign Branch
Section 2(9) of the Companies Act, 1956 defines a Branch Office as-
z Any establishment described as a Branch by the Company
z Any establishment carrying on either the same or substantially the same activity as that
carried on by the Head Office of the Company;any establishment engaged in any
production, processing or manufacturing but does not include any establishment specified
in the Central Governnent’s Order u/s 8.
Classification of Branches :
A. Inland Branches:
(i) Dependent Branches : branches in respect of which the whole of the accounting
records are kept at Head Office only.
(ii) Independent Branches : branches which maintain independent accounting records.
B. Foreign Branches : branches which are located in a foreign country(i.e. in a country
other than in which the company is incorporated and registered)
Dependent Branches
Branch Accounts can be maintained at the Head Office, particularly when the business
policies and administration of the Branch are wholly controlled by the Head office.
The Branch prepares the periodic returns based on which the accounting records are
maintained at the Head Office.
Methods of Accounting :
(i) Final Accounts Method; (ii) Debtors Method and (iii) Stock and Debtors Method.
FINAL ACCOUNTS METHOD
Branch Trading and Profit & Loss Account
Particulars Amt Particulars Amt
To Opening Stock at Branch (at Cost) ××× By Sales made at Branch
To Goods sent from Head Office ××× (net of returns)
Less: Goods returned to H.O ××× —Cash ×××
To Purchases (made directly by ××× —Credit ×××
Branch, if any) By Closing Stock at Branch (at Cost) ×××
To Direct Expenses at Branch (if any) ×××
To Gross proft c/d ×××
××× ×××
To Various expenses incurred at Branch ××× By Gross profit b/d ×××
(including Bad Debts if any)
To General P&L Account ×××
(Net Profit transferred)
××× ×××
Note: If goods are invoiced above cost, the loading (i,e,profit element) on opening Stock,
Goods Sent from Head office (net of returns) and Closing Stock are reversed, in ascertain
the true profits.
Note : If goods are invoiced above cost, the loading (i.e. profit element) on opening stock,
Goods sent from Head Office (net of returns) and Closing Stock are reversed, in order to
ascertain the true profits.
Stock and Debtors Method : (for dependent branches)
1. Ledger Accounts : The following accounts are maintained by the Head office under the
Stock and Debtors System–
(a) Branch Stock Account (or Branch Trading A/c) — to ascertain Gross Profit
(b) Branch Profit and Loss Account — to ascertain Net profit
(c) Branch Debtors Account — to record Receivables/Credit Sales,
if any.
(d) Branch Expenses Account — to record expenses incurred at
Branch
(e) Branch Cash Account — to control Branch Cash position/
remittances
(f) Branch Adjustment Account — to reverse Loading i. e. unrealised
profits, if any.
(g) Goods sent to Branch Account — to record goods sent/returned
(h) Branch Assets Account — to record Assets at Branch, if any.
2. Journal Entries :
Branch Account
INDEPENDENT BRANCHES
1. Goods sent by HO to Branch Branch A/c Dr. Goods Recd. from H.O. A/c. Dr.
To Goods Sent to Branch A/c To HO A/c
2. Goods returned by Branch to Goods Sent to Branch HO A/c. Dr.
HO A/c. Dr. To Goods Recd. from
To Branch A/c H. O. A/c
3. Branch Expenses incurred — Expenses A/c Dr.
and Head Office To Cash / Bank A/c
4. Branch expenses paid for by Branch A/c Dr. Expenses A/c. Dr.
the Head Office To Cash/Bank A/c To HO A/c
5. Purchases made from parties — Purchases A/c Dr
other than H.O. by Branch To Bank/ Creditors A/c
6. Sales effected by the Branch Cash/Debtors A/c Dr
To Sales A/c
7. Collection from Debtors Cash/Bank A/c Dr. H.O. A/c Dr.
received directly by the H.O. To Branch A/c To Sundry Debtors A/c
8. Payment by H.O. for Purchase Branch A/c Dr Purchases/Creditors A/c Dr.
made by the Branch To Bank A/c To Ho A/c
9. Purchase of Asset by Branch — Sundry Assets A/c Dr
To Bank/Liability
10. Asset account maintained at Branch Asset A/c Dr. H.O. A/c Dr.
Ho and asset purchased by To Branch A/c To Bank/Creditors A/c
Branch
11. Depreciation when asset Branch A/c Dr Depreciation A/c Dr.
account is maintained by H.O. To Branch Asset A/c To H.O. A/c
12. Remittance of Funds by H.O. Branch A/c Dr. Bank A/c Dr.
to Branch To Bank A/c To H.O. A/c
13. Remittance of Funds to H.O. Bank A/c Dr Ho A/c Dr
by Branch To Branch A/c To Bank A/c
14. Transfer of Goods between Recipient Branch A/c Dr. (i) Supplying Branch A/c Dr
different branches To Supplying Brabch A/c To Goods recd.from
(ii) Goods recd.from H.O. A/c Dr.
To H.O. A/c
15. Charging the Branch Branch A/c Dr. (Expenses) A/c Expense A/c Dr.
service charges by H.O. To Service Charges A/c To H.O. A/c
CONSOLIDATION METHOD
1. Separate financial statements are not prepared. The Head Office prepares the consolidated
financial statements for the entity as a whole.
2. Balances in all the ledger accounts are transferred to the Head Office, where all the accounts
are consoli-dated and financial statements prepared for the whold entity.
3. Journal Entry At Branch —
1. For Transfer of Assets and Expenses :
H. O. A/c Dr.
To (individual) Assets A/c
To (individual) Expenses A/c
2. For Transfer of Liabilities and Income :
(Indivivual) Asset A/c Dr.
(Individual) Income A/c Dr
To H. O. A/c Dr.
4. Journal Entry Head Office —
1. For Transfer of Assets and Expenses :
(Individual) Asset A/c Dr.
(Individual) Expense A/c
To Branch A/c.
2. For Transfer of Liabilities and lncome:
Branch A/c Dr.
To (Individual) Liability A/c
To (Individual) Income A/c
5. 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)
FOREIGN BRANCH
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 and they have to be translated into
Reporting Currency i.e. the currency in which the Head Office transacts.
Exchange rate of Reporting Currency in not stable in relation to foreign currencies due to
international demand and supply effects on various currencies. Therefore, different rates are
assigned to different transactions and balances upon translation.
Closing Stock Rates prevalent at the close of the Accounting Period i.e. Closing
Rate
Fixed Asset Translated at the original rate. If there is a change in the value of
the Eoreign currency Liabilities, adjustment should be made to
cost of fixed Assets in Rupees.
Depreciation Rate used for translation of value of Fixed Assets on which the
depreciation is calcutated.
Current Assets Rates prevalent at the close of the Accounting Period i.e. Closing
Rate
Current Liabilities Rates prevalent at the close of the Accounting Period i.e. Closing
Rate
Long Term Liabilities Rate Prevalent at the close of the Accounting Period i.e. Closing
Rate
Head Office Account Balance in ‘Head Office Account’ in the Branch Books is taken at
the Indian rupees for which ‘Branch Account’ in the head office
books stands. It must be ensured that that no transaction is left
unaccounted in both the books.
Profit / Loss on Translation : Profit or Loss arising out of change in Exchange rate should be
Credited/Debited to the Profit and Loss Account for the current period.
DEBTORS METHOD
Illustration 1.
1. From the following information, prepare Kolkata Branch Account in the books of head
office for the year ending on 31st March 2008 :
Rs. Rs.
Opening Stock (at cost) 17,800 Discount allowed to Customers 50
Opening Debtors 1,400 Bad Debts written off 100
Opening Petty Cash 25 Credit Sales 72,940
Furniture (in the beginning) 600 Cash Sales 3,200
Opening Creditors 6,000 Petty Expenses paid by Brand 800
Goods sent to Branch (at Cost) 52,200 Cheques sent to Branch for expenses :
Goods returned by Branch to Salaries 3,000
H.O. (at cost) 780 Rent and Insurance 1,200
Goods returned by Customers Petty Cash 787
to Branch 570
Cash received by Branch from
its Customers 61,100
Goods are sold to customers at cost puls 50%. Depreciate the furniture @ 10% p.a.
Solution :
Dr. Kolkata Branch Account In the Books of H.O. Cr.
70,000 70,000
74,340 74,340
812 812
64,300 64,300
Case II
Illustration 3.
ILLUSION Ltd, Ranchi, started on 1st April, 2007, has two branches at Gurgaon and Kachar.
All goods sold at the branches are received from the Head Office invoiced at cost plus 25 percent.
All expenses relating to Branches are paid by the Head Office. Each branch has its own sales
Ledger and sends weekly statement. All cash collections are remitted duily to Head Office by
the branches. The following particulars relating to the year ended 31st March, 2008 have been
extracted from the weekly statement sent by the branches:—
You are required to prepare the Branch Account as they would appear in the books of the
Head Office, showing the Profit or Loss for the period and the Trading and Profit and Loss
Account separately for each Branch.
Solution :
Branch Trading and Profit and Loss Account
WHOLESALE BRANCH
Illustration 4.
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
Rs. Rs.
Purchases 2,00,000 —
Goods sent to/Received by Branch (Invoice Price) 80,000 —
Sales to Customers 1,70,000 80,000
Solution :
Dr. Branch Trading Profit and Loss Account Cr.
Particulars Rs. Particulars Rs.
To Goods Sent to Branch A/c 80,000 By Salses 80,000
To Retail Profit t/f to Branch By Closing Stock
P & L A/c (b.f.) 16,000 [See working note (ii)] 16,000
96,000 96,000
To Net Profit subject to By Gross Profit b/d 16,000
other Branch Expenses 16,000
16,000 16,000
Dr. Branch Stock Reserve Account Cr.
Working Notes :
(ii) Closing Stock at Branch =Opening Stock (at W.P.) + Goods sent (at W.P.) — Wholesale
price of goods sold
=Nil + Rs. 80,000 — (80,000 × 160/160) = 16,000
(iii) Closing Stock at H.O. =Opening Stock (at cost) + Purchases (at cost) — Cost of Goods
sent to branch — Cost of Goods sold at H.O.
Nil + Rs. 2,00,000 – (Rs. 80,000 × 100/160) —
(Rs. 1,70,000 × 100/200) = Rs. 65,000
Illurstration 5.
Journalise the following transactions in the books of Head Office. Delhi Branch and Agra
Branch :
(a) Goods worth Rs. 50,000 are supplied by Delhi Branch to Agra Branch under the instructions
of Head Office. (b) Delhi Branch draws a bill receivable for Rs 40,000 on Agra Branch which
sends its acceptance. (c) Delhi Branch received Rs 10,000 from Agra Branch. (d) Goods worth
Rs. 20,000 were returned by a customer of Agra Branch to Delhi Branch. (e) Agra Branch collected
Rs 20,000 from a customer of Delhi Branch.
Illustration 6.
A Delhi head office passes one entry at the end of each month toadjust the position arising
out of inter-branch transactions during the month. From the following inter-branch transactions
in April 2008, make the entries in the books of Delhi Head office.
(a) Kolkata Branch :
(i) Received goods from Patna branch Rs. 9,000 and Ahmedabad branch Rs. 6,000.
(ii) Sent goods to Ahmedabad branch Rs. 15,000 and Patna branch Rs. 12,000.
(iii) Sent acceptances to Patna branch Rs. 6,000 and Ahmedabad branch Rs. 3,000.
(b) Kanpur branch [apart from (a) above ] :
(i) Sent goods to Ahmedabad branch Rs. 9,000.
(ii) Recived B/R from Ahmedabad branch Rs. 9,000.
(iii) Recived cash from Ahmedabad branch Rs. 5,000.
Solution :
Journal of Head Office
Particulars L.F. Dr. (Rs) Cr. (Rs)
Kanpur Branch A/c Dr. 12,000
Nagpur Branch A/c Dr. 2,000
To Kolkata Branch A/c 12,000
To Ahmedabad Branch A/c 2,000
(Being the inter-branch transactions record based on the
details in statement given below
FOREIGN BRANCH
Illustration 8.
How will you translate the following items of the SingaporeBranch as on 31.03.2008.
Opening Stock $ 4,100, Goods from H. O. $ 29,400, Salaries & Wages $ 7,600, Sales $ 52,600,
Closing Stock $ 1,200, Goods sent to London Branch in the H. O. Books amounted to Rs. 10,73,100,
Exchanges Rates : on 1.4.2008 $ 1 = Rs. 26.40, on 31.03.2008 $ 1 = Rs. 42.20, Average of 2007-2008
$ 1 = Rs. 36.50 (Here, $ refers to Singapore Dollars)
Solution :
Statement showing the Translation into Rupees
EXERCISE
Problem 1. The following information and particulars relate to Bangalore Branch for the
year 2007-2008.
31.3.2007 31.3.2008
Stock Rs 50,000 Rs.75,000
Debtors Rs.70,000 Rs.95,000
Petty Cash Rs. 250 Rs. 120
Goods costing Rs. 5,50,000 were sold by the Branch @25% on cost. Cash sales amounted
to Rs. 1,50,000 and the rest were credit sales. Branch spent Rs. 30,000 for Salaries, Rs. 12,000
for Rent and Rs. 8,000 for Petty expenses. All expenses were remitted by H.O. Branch receives
all goods from H.O. Show the Bangalore Branch Account.
[Net Profit Rs. 87,500, Total Sales Rs. 6,87,500 ; Credit Sales Rs. 5,37,500]
Problem 2. From the folloing details relating to the Delhi Branch for the year ending on 31st
March 2008, prepare the Branch Account in the books of the Head Office.
Rs. Rs.
Opening Stock 25,000 Cash received from Debtors 65,000
Opening Debtors 10,000 Cash paid by Debtors directly to H.O.5,000
Opening Furniture 6,000 Closing Stock 15,000
Opening Petty Cash 1,000 Goods returned by Branch 2,000
Prepaid Insurance in the begnning 300 Goods returned by Debtors 1,000
Salaries outstanding in the beginning 4,000 Cash sent to Branch for Expenses :
Goods sent to Branch 2,00,000 Rent (Rs. 800 p.m.) 9,600
Cash Sales during the year 2,70,000 Salary (Rs. 4,000 p.m.) 48,000
Total Sales 3,50,000 Petty Cash 2,000
Petty Cash Expenses 2,200 Insurance (upto June, 2008) 1,200
Discount allowed to Debtors 500
Good costing Rs. 2,500 were damaged in transit and a sum of Rs. 2,000 was recovered
from the insurance company in full settlement of the claim. Depreciate the Furniture @ 10%.
p.a.
[Net Profit Rs. 80,900]
Problem 3. Orissa had office supplies goods to its Kalikut Branch at invoice price which is
cost plus 50%. All cash received by branch is remitted to H. O. and all branch expenses are
Rs. Rs.
Opening Stock at Branch 60,000 Discount allowed to Debtors 2,400
Opening Branch Debtors 12,000 Expenses (Cash paid by Head Office):
Opening Petty Cash Balance 10 Head Office):
Goods received from Head office 1,86,000 Rent Rs. 2,400
Goods returned to Head office 3,000 Salaries Rs. 24,000
Allowance to Customer off Petty Cash Rs. 1,000 27,400
Selling Price Cash Sales 1,04,000
(already adjusted while invoicing) 1,000 Closing Petty Cash Balance 100
Cash received from Debtors 90,000 Closing Branch Debtors 3,600
Net Profit Rs. 32,200; Credit Sales Rs. 84,000; Closing Stock Rs. 54,000.
Problem 4. Rosy (India) Ltd. of Delhi operates a retail branch at Madras. The head office
make all the purchases and the branch is charged at cost price plus 50%. All cash received by
the Madras branch is remitted to Delhi. Branch expenses are paid by the branch out of an
imprest account which is reimburses by Delhi H.O. monthly.
The branch keeps a sales ledger and certain essential subsidiary book, but otherwise all branch
transactions are recorded at Delhi. On 1st April, 2007 stock in trade at the branch at selling
price amounted to Rs. 6,000 and debtor’s balance were Rs. 4,000
During the year ended 31st March 2008, the following branch transactions were made.
Rs. Rs.
Good received from Delhi 15,000 Cash received from debtors 4,800
Cash Sales 6,900 Debtors written off as irrecoverable 250
Goods returned to Delhi 300 Cash Discounts allowed to debtors 100
Closing Debtors 5,150
Authorised reductions in selling
price of goods sold 150
A consignment of goods despatched so the branch on 28th March, with a selling price of Rs.
180 was not received until, 5th April, and had not been included in stock figure, which at
selling price was 7,290. The expense relating to the branch for the year ended 31st March
2008 amounted to Rs. 1,800.
You are required: (a) to write up the Branch stock account and Branch debtors account
maintained at Delhi with a view to control stock and debtors, and (b) to prepare the trading
and profit and loss account of the branch for the year ended 31st March, 2008.
Note : Any stock unaccounted for is to be regarded as normal wastage and pilferage.
Net Profit Rs. 2,110; Credit Sales Rs. 6,300; Branch Adjustment for Normal Loss Rs. 60.
Problem 5. Subhas Electrical has its branches at Chandigrah and Gwalior to whom goods
are invoiced at cost plus 25%. Following information is avaliable of the transactions at
Chandigarh Branch for the year ending 31st March. 20X2.
Balances As at 1.4.2007 As at 31.3.2008
Rs. Rs.
Stock at invoice price 40,000 ?
Debtors 12,000 11,000
Petty Cash 150 250
Transactions during 2007-08: Rs.
Goods sent to branch 4,20,000
Goods returned to Head Office 15,000
Cash Sales 1,05,000
Credit Sales 1,80,000
Normal Loss (at cost) 280
Goods pilfered (at invoice price) 3,000
Goods lost in fire (at invoice price) 4,000
Insurance company paid to Head Office for loss by fire at Gwalior
3,000
Cash sent for petty expenses 32,000
Bad debts at Gwalior Branch 400
Goods transferred to Pune Branch under instructions from Head Office
at invoice price 200
Insurance charges paid by Head Office. 12,000
Goods returned by debtors 500
Note : Goods transferred to Pune Branch (given above) were in transit on 31st March 20X2.
Propare : (i) Branch Stock Account; (ii) Branch Adjustment Account; (iii) Branch Profit and
Loss Account; and (iv) Stock Reserve Account.
[Net Profit : Branch Stock Rs. 1,41,150; Gross Profit Rs. 56,620; Net Profit Rs. 21,520]
Problem 6. Ltd. sends goods to its Madras Branch at cost plus 25 per cent. The following
particulars are available in respect of the Branch for the year ended 31st March. 20X1.
Rs. Rs.
Opening Stock at Branch Closing stock at branch
at coat to Branch 80,000 at cost to Branch 40,000
Loss-in-transit at invoice price 15,000 Expenses 60,000
Pifferage at invoice price 6,000 Sales 12,19,000
Recovered from Insurnace
Company against loss-in-transit 10,000
Prepare (a) Branch Stock Account (b) Branch Adjustment Account (c) Branch Profit and
Loss Account (d) Goods sent to Branch Account.
[Net Profit : Rs. 2,43,800; Net Profit Rs. 1,77,000]