ACCOUNTANCY FORM 5 – 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

  DR                                     BRANCH DEBTORS A/C                                                                      CR

 DR                                      BRANCH STOCK A/C                                                                          CR

 DR                                         BRANCH     EXPENSES     A/C                                                          CR

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

 Example.

On 1^st 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 30^th 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

 DR                                        GOODS SENT TO BRANCH         A/C                                                 CR

DR                                           BRANCH STOCK ADJUSTMENT A/C                                                CR

EXERCISES    
                 

1. C’Company Ltd opened a shop at dare s salaam at 1^st 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 31^st 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

  DR                                     BRANCH   STOCK   ADJUSTMENT   A/C                                               CR

DR                                 BRANCH PROFIT AND LOSS A/C                                                              CR

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      

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.
1^st January 20 x 9 -stock at cost                         2,000

                            – Debtors                                 400

During the year ended 31^st 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

 DR                     BRANCH STOCK A/C                                                                                          CR

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

 DR       GOODS   SENT   TO   BRANCH   A/C                                                                                     CR

    DR                  B.S.   ADJUSTMENT   A/C                 CR

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 28^th Feb.

Stock on hand 1st March 2006 at invoice price ……………………………… 440

Debtors on 1^st March 2006 at invoice price   ………………………………. .3941

Stock on hand, 28^th 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
  

 

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   DR                                                 BRANCH STOCK   A/C                                                               CR

4400 x 25%   = 1100

24800 x 25% = 6200

3948 x 25%   = 987

DR                                             BRANCH   DEBTORS   A/C                                                                CR

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
  

 

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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

ILLUSTRATION (1)

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

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 31^st December,19-8 was Tshs 50,000.

 

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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 31^st December 19-8 and,

b)      Balance sheet as on that date

SOLUTION:

Trading account and profit and loss account for the year ended 31^st December, 19-8

Balance sheet as at 31^st December, 1990