BRANCH ACCOUNTING FOR IPCC STUDENT CA MANISH PANDEY +91-9903559137

Branch A trading company may try to expand its business by opening BRANCHES as another establishment of the company in different locations

Account kept by Branch

Account Kept by Branch Head office and Branch will open a full set of books to record their won transactions instead of branch books are kept by the Head office

In Head Office books: In Branch books: Branch Current Account is opened to record transactions between the Head Office and the Branch In Branch books: Head Office Current Account is opened to record transactions between them

HO’s Book: Branch Current $ $ Bal b/f X Goods in Transit X Remittance from branch X Branch net profit X Cash in Transit X Bal c/f X X X Branch’s Book: HO Current $ $ Remittance to HO X Bal b/f X Bal c/f X Net profit X X X

Goods in Transit (GIT) Goods were sent by the Head Office before the end of the financial period, but received by the branch after the end of the financial period GIT =Goods Sent to Branch – Goods received from HO

Remittances/Cash in Transit (CIT) The remittance or cash was remitted by the branch before the end of the financial period, but was received by the Head office after the end of the financial period CIT= Remittance to Head Office – Remittance from Branch

Preparation of the Final Accounts Separate trading and profit and loss accounts and balance sheets would be prepared for the head office and the branch(es)

Head office (HO) books Branch books No entry Transactions 1 Opening Stock Dr HO Trading Cr Stock (opening stock)[at cost] Dr Branch Trading Cr Stock (Opening stock)[at Cost or Cost+profit] 2 Goods purchased directly from HO suppliers[at cost] Dr Purchase(Trading) Cr Creditors No entry 3 Goods purchased directly from Branch suppliers [at cost] NO entry Dr Purchase(trading)

Head office (HO) books Branch books Transactions 4 Goods sent from HO to Branch [cost+profit] Dr Branch Current Cr Goods sent to Branch Dr Good received from HO Cr HO Current 5 Goods returned from Branch to HO Dr Goods sent to branch Cr Branch Current Dr HO Current Cr Good received from HO 6 Cash sales/Credit sales Dr HO Cash/Debtors Cr HO Sales Dr Branch cash/ debtors Cr Branch sales

Head office (HO) books Branch books Transactions 7 Closing stock Dr Stock(Closing) Cr HO Trading Dr Stock (Closing) Cr Branch Trading good purchased directly from Branch suppliers [at cost] & goods received from HO [cost+profit] 8 Gross profit on trading Dr HO Trading Cr HO profit and loss Dr Branch Trading Cr Branch profit and loss 9 HO expenses paid by HO Dr Expenses (P&L) Cr Cash/Bank No entry

Head office (HO) books Branch books Transactions 10 Branch expenses paid by Head Office Dr Branch Current Cr Cash/Bank Dr Expenses (P&L) Cr HO Current 11 Branch expenses paid by Branch No entry 12 Administrative charges for services rendered by HO to Branch Cr HO P&L (Income) Dr Branch P&L

Head office (HO) books Branch books Transactions 13 Provision for Unrealized Profit (Branch & Goods in Transit)[cost+profit] Increase in provision Dr HO P&L Cr Prov. For Unrealized profit Decrease in provision Reverse No entry 14 Goods in Transit(GIT) Dr Goods in Transit Cr Branch Current NO entry 15 Cash in Transit (CIT) Dr Cash in Transit

Head office (HO) books Branch books Transactions 16 Profit made by the branch Dr Branch Current Cr Retained profit Dr Branch P&L Cr HO Current 17 Profit made by HO Dr P&L No entry 18 Cash remittances from the branch Dr Bank Cr Branch Current Or Cr remittance from branch Dr Remittance from branch Dr HO Current Cr Bank Dr Remittance to HO Cr Remittances to HO

Inter-company transactions It would not be transferred to the total column of the trading and profit and loss account and the balance sheet For example, goods sent to the branch, goods from the head office, service overheads charged by the head office to the branch, head office current account, branch current account provision for unrealized profit

Example -1

Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Cash and Bank 114300 80800 Debtors 360000 40000 HO Current 146000 Branch Current 194000 Fixed assets 1532000 152000 Stock,1Jan 1997 60000 36000 Creditors 96000 10000 Prov. For dep 38300 3800 Remittances to HO 11000 Remittances from Branch 10000 Capital 1200000

Service Charged Received 5000 Administrative Expenses 245000 36000 HO Branch $ $ $ $ Retained Profits 112000 Purchases and Sales 900000 1400000 860000 Good sent to branch 664000 Good from HO 616000 Selling Expenses 120000 48000 Service Charged Received 5000 Administrative Expenses 245000 36000 3525300 3525300 1019800 1019800 Additional information: Goods purchased by the HO are sent to the branch at cost Stock at 31 Dec 1997: HO $80000; Branch $10600 Depreciation is to be provided at 10% on cost per annum Administrative expenses include an annual charge of $5000 for services rendered by the head office Required: Prepare final accounts of HO and Branch for the year ended 31Dec 1997

Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales 1400 860 2260 Good Sent to Branch 664 - - 2064 860 2260 Less COGS Opening Stock 60 36 96 Purchases 900 - 900 Goods from HO - 616 - 80+10.6+48 960 652 996 Less Closing stock(WK1)80 880 10.6 641.4 138.6 857.4 Gross profit 1184 218.6 1402.6 Add: Service charges received 5 - - Less: Depreciation 153.2 15.2 168.4 Selling expense 120 48 168 Admin. Exp.(WK2)245 518 36 99.2 276 612.4 Net profit 670.8 119.4 790.2 245+36-5

WK1: The total closing stock should be included Goods in transit as GIT are still unsold goods at year end but those goods are transported on the way => 80+10.6+48 = 138.6 Wk2: The total administrative expenses should deduct the inter- Company service charges of $5000 => 24.5+36-5=276

HO’s Book: Branch Current $ $ Bal b/f 194000 Goods in Transit (664000-61600) 48000 Branch net profit 119400 Remittance from branch 10000 Cash in Transit (11000-10000) 1000 Bal c/f 254400 313400 313400 Branch’s Book: HO Current $ $ Remittance to HO 11000 Bal b/f 146000 Bal c/f 254400 Net profit 119400 265400 265400

Less Current Liabilities Creditors 96 10 106 Balance Sheet as at 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Fixed Assets 1532 152 1684 Less provision for Dep 191.5 19 210.5 1340.5 133 1437.5 Current Assets Stock 80 10.6 138.6 Goods in Transit 48 - - Branch Current 254.4 - - 80+10.6+48 Debtors 360 40 400 Cash and Bank 114.3 80.8 196.1 Cash in Transit 1 - - 857.7 131.4 734.7 Less Current Liabilities 114.3+80.8+1 Creditors 96 10 106 Working Capital 761.7 121.4 628.7 2102.2 254.4 2102.2 Capital 1200 - 1200 112+670.8+119.4 Retained profit 902.2 - 902.2 Head Office Current - 254.4 - 212.2 254.4 2102.2

Goods Sent to Branch at Mark-up

Goods Sent to Branch at a Mark Up The head office supplies goods to its branch with an invoice price at cost plus profit Goods Sent to Branch a/c and Goods Received from HO a/c are valued at invoice price. If there is unsold stock at the end of the accounting period, the unrealized profit-in-stock must be eliminated from the consolidated final accounts A Provision for Unrealized Profit a/c will be opened to measure unearned profit included in the closing stock of the branch and reflect in the HO’s book

Provision for Unrealized Profit =Stock at mark up* Mark up 100%+Mark up Stock mark up= Closing stock at branch sent from HO + Goods in transit Closing stock of branch include goods directly purchased from suppliers will not be concerned in the calculation of the provision of unrealized profit

Account entries Increase in Provision Dr P/L Cr Provision for unrealized profit Decrease in Provision Dr Provision for unrealized profit Cr P/L The increase or decrease in the provision should be entered in the profit and loss a/c The balance should be appear in the balance sheet under Current Liabilities The total stock= stock in HO+stock in branch+stock in transit - provision for unrealized profit

Example - 2

Goods sent form the head office are charged to the branch At cost plus 10% the closing stock was valued as follows: Date HO Branch Goods in transit 31 Dec 1991 80000 66000 22000 (1st year of business) 31 Dec 1992 96000 86900 5500 31 Dec 1993 84000 71500 4950 31 Dec 1994 108000 75900 550 Required Prepare Provision for unrealized profit account for 1992-1994

Provision for unrealized profit 91 $ 91 $ Dec 31 Bal c/d 8000 (66000+22000*10/110 Dec 31 P/L 8000 92 92 Jan 1 Bal b/d 8000 Dec 31 Bal c/d 8400 (869000+5500)*10/110 Dec 31 P/L 400 8400 8400 93 93 Dec 31 P/L 1450 Jan 1 Bal b/d 8400 Dec 31 Bal c/d 6950 (71500+4950)*10/110 8400 8400 94 94 Dec 31 Bal c/d 6950 (75900+550)*10/110 Jan 1 Bal b/d 6950

Stock Loss Normal stock loss Abnormal stock loss Related to the ordinary activities of the business e.g. Obsolete stock, damaged stock No entry needed Caused by an exceptional events e.g. fire loss, burglary loss Accounting recorded needed

Accounting entries – abnormal Loss Events HO’s book Branch’s book Total column Stock loss in the HO Dr P/L Cr Trading (cost) No entry Cr Trading (Cost) Stock loss in transit Dr Goods sent to Branch Cr Branch Current (Mark up) Stock loss in Branch NO entry

Example-3

Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. All goods sold by branch are supplied by the HO at cost plus 10% Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Share Capital 260000 Profit and loss account 125000 HO Current 79500 Branch Current 85000 Fixed assets 345000 70000 Stock,1Jan 1997 48500 15400 Debtors/Creditors 60400 35000 14700 37200 Prov. For dep 13700 16400 Remittances to HO 26000 Remittances from Branch 22000

Provision for unrealized profit 1400 HO Branch $ $ $ $ Bank and cash 15900 3100 Purchases and Sales 255000 229700 44600 199700 Good sent to branch 154000 Good from HO 148500 Provision for unrealized profit 1400 Administrative Expenses 31000 10500 840800 840800 332800 332800 Additional information: Stock as at 31 Dec 1997 excluding goods in transit was valued at followings: Head office, at cost $32600 Branch, at cost to branch - received from HO $16500 - own purchases $8000 The branch stock at 31 Dec 1996 consisted wholly of goods received from the head office

On 20 Nov 1997 some goods received by the branch from the head office were destroyed by fire. No entry has been made for this loss. The cost of these goods to the branch was $11000 Depreciation is to be provided on fixed asset at 2% per annum on cost Required Prepare final accounts for HO and Branch separately as at 31 Dec 1997

Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales 229.7 199.7 429.4 Good Sent to Branch 154 - - 383.7 199.7 429.4 Less COGS Opening Stock (WK1) 48.5 15.4 62.5 Purchases 255 44.6 299.6 Goods from HO - 148.5 - 303.5 208.5 362.1 Less:Fire loss (WK2) - 11 10 16.5+8 Less Closing stock(WK3)32.6 270.9 24.5 173 60.6 291.5 Gross profit 112.8 26.7 137.9 Less: Depreciation 6.9 1.4 8.3 Fire loss - 11 10 Administrative 31 10.5 41.5 Prov for Unrealized profit 0.6 38.5 - 22.9 - 59.8 (1.5+5)-1.4 74.3 3.8 78.1

WK1: HO and Branch value stock on different bases in this case. HO’s Stock is valued at cost; while Branch’s stock is valued at mark-up. Total opening stock should be recorded at cost price HO+Branch(at mark up) – Opening prov. for unrealized profit = 48.5+15.4+1.4 = 62.5 WK2: Fire loss in total column should be recorded at cost price rather than mark-up price Invoice price = Cost + Profit Cost = Invoice Price – Profit = 1.1 – 1.1*10/110 = 10

WK3: Total closing stock should be included HO’s stock, Branch’s Stock and Goods in transit HO’s stock and Branch (own purchases)’s stock are valued at cost;while Branch (received from HO)’s stock and Goods in transit are valued at mark-up. Those goods should be adjusted at cost price Total closing stock should be included: 32.6+8+(16.5-16.5*10/110)+(1.1-1.1*10/110) = 60.6

WK4: Provision for unrealized profit Bal b/f 1400 P/L 600 Bal c/f 2000 (16500+5500)*10/110 2000 2000

Less Current Liabilities Creditors 35 37.2 72.2 Balance Sheet as at 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Fixed Assets 345 70 415 Less provision for Dep 20.6 17.8 38.4 324.4 52.2 376.6 Current Assets Stock 32.6 24.5 60.6 Goods in Transit 5.5 - - Branch Current(WK1) 57.3 - - Debtors 60.4 14.7 75.1 Cash and Bank 15.9 3.1 23 Cash in Transit 1 - - 175.7 42.3 158.7 Less Current Liabilities 15.9+31+4 Creditors 35 37.2 72.2 Prov for unrealized 2 - - profit Working Capital 138.7 5.1 86.5 463.1 57.3 463.1 Capital 260 - 260 12.5+74.3+3.8 Retained profit 203.1 - 203.1 Head Office Current WK2) - 57.3 - 463.1 57.3 463.1

WK1: HO’s book: Branch Current Bal b/f 85000 Branch net profit 3800 Goods in transit 5500 Remittance from branch22000 Cash in transit (26000-22000) 4000 Bal c/f 57300 88800 88800 Wk2: Branch’s book: HO Current Remittance to HO 26000 Bal b/f 79500 Branch net profit 3800 Bal c/f 57300 833000 833000

Account kept by Head Office

Account kept by HO The branch do not keep their won records, the HO will keep all accounting records for the branch transactions

Goods are invoiced to the Branch at cost plus profit Cost + Profit = Invoiced price Goods Sent to Branch a/c Branch Stock Adjustment a/c Branch Stock a/c The gross profit will be calculated in Branch Stock Adjustment account

Goods returned by Branch to HO Transactions Accounting entries Opening stock balance Branch stock a/c-opening “debit” balance recorded as “cost plus profit” Branch Stock Adjustment a/c- Opening “Credit” balance recorded as “Profit” portion only Goods sent to branch Dr Branch Stock [cost+profit] Cr Goods sent to Branch [cost] Cr Branch stock adjustment [profit] Goods returned by Branch to HO Dr Goods sent to Branch [cost] Dr Branch stock adjustment [profit] Cr Branch Stock [cost+profit]

Credit Sales at the Branch Cash Sales at the Branch Transactions Accounting entries Credit Sales at the Branch Dr Branch Debtors (selling price) Cr Branch Stock Cash Sales at the Branch Dr Branch Cash (selling price) Goods returned by customer to Branch Dr Branch Stock (selling price) Cr Branch Debtors Bad debts, Discount Allowed to customer Dr Branch Profit and loss Branch expenses Cr Cash/Bank Branch income Dr Cash/Bank Cr Branch Profit and loss

Treatment of closing stock Transactions Accounting entries Treatment of closing stock Branch Stock a/c- actual stock+ GIT recorded as “cost plus profit” will be entered on the credit side as closing debit balance Branch stock adjustment a/c- actual stock + GIT recorded as “Profit” portion will be entered on debit side as closing credit balance Net amount of Goods sent to Branch deducted from HO Purchases a/c and transfer to trading a/c Dr Goods sent to Branch [cost] Cr Head Office Purchases/Trading Branch transferred Stock adjustment to branch P/L Dr Branch Stock Adjustment Cr Branch Profit and loss Treatment of Branch net profit Dr Branch Profit and loss Cr Head Office profit and loss

Example-4

Sino Ltd. Sends goods at the selling price to the branch Sino Ltd. Sends goods at the selling price to the branch. The selling price is cost plus 10 per cent. The branch accounts are maintained by the head office. Transactions between the head office and the branch for the year ended 31 December 1997 were as follows: $ Opening stock at branch at selling price 110,000 Goods sent to branch at cost 750,000 Goods returned to the head office at cost 50,000 Credit sales by branch 354,000 Cash sales by branch 350,000 Goods returned to branch at selling price 33,000 Closing stock at branch at selling price 171,500 Closing goods in transit at selling price 37,500

Branch Stock(SP) $ $ Bal b/f 110000 Return to HO (50000*1.1) 55000 Gd sent to branch (750000*1.1) 825000 Branch debtors 354000 Branch cash 350000 Branch debtors-return 33000 Bal c/f (171500+37500) 209000 968000 968000 Branch Adjustment(Profit) $ $ Return to HO (55000*10/110) 5000 Bal b/f (110000*10/110) 10000 Branch stock (75000*0.1) 75000 Branch P/L 61000 Bal c/f(209000*10/110) 19000 85000 85000 Goods Sent to Branch(cost) $ $ Branch stock 50000 Branch stock 750000 HO Purchase 700000 750000 750000

Transactions Accounting entries Stock Loss in Branch -Normal Loss event related to ordinary activities of the business e.g. pilferage, stock wastage, unaccounted stock -Abnormal Loss caused by exceptional event e.g. fire, burglary etc -Goods lost in transit Dr Branch Stock Adjustment [cost+profit] Cr Branch Stock Dr Branch Profit & Loss [cost] Dr Branch Stock Adjustment [profit] Cr Branch Stock [cost+profit] Dr Branch adjustment [profit] Dr Profit & Loss [cost]

Stock transfer from branch A to branch B Transactions Accounting entries Stock transfer from branch A to branch B Dr Goods sent branch A [cost] Dr Branch A Adjustment [profit] Cr Branch A Stock [cost+profit] Dr Branch B Stock [cost+profit] Cr Good sent to branch B [cost] Cr Branch B stock [cost+profit] Branch Stock Valuation -reduction in selling price Dr Branch Adjustment Cr Branch Stock [with the total reduction off the selling price] Addition mark up -Goods are sent to the branch at mark up lower than selling price -Goods are sold to customers with an additional mark up Dr Branch Stock [cost+profit] Cr Branch adjustment [profit] Cr Goods sent to branch [cost] Dr Branch Stock

Cash Misappropriation -loss from the theft of the cash takings Transactions Accounting entries Cash Misappropriation -loss from the theft of the cash takings Dr Cash Misappropriated Cr Cash Dr Branch profit and loss Cr Cash Misappropriated

Example-5

Joyce Ltd. Has a head office in Central and two branches, one in Shatin and the other in Tsuen Wan. Branch accounts are maintained by the head office. Goods are invoiced to Shatin at cost plus 20 per cent. This is the selling price. Joyce Ltd. Sent goods at cost plus 25 per cent to Tsuen Wan. The selling price in this branch was cost plus 30 per cent. The head office books showed the following balances related to transactions between the head office and its two branches for the year ended 31 December 1997: Shatin Tsuen Wan $ $ Opening stock at cost 100,000 56,000 Credit sales by branches 800,000 476,840

Shatin Tsuen Wan $ $ Goods sent to branches at cost 806,000 400,000 Goods returned by branches at cost 80,000 -- Stock lost in first at cost 64,000 -- Reduction in selling price 13,500 -- Cash received from debtors 340,200 345,320 Discount allowed 2,000 3,000 Bad debts written off 500 800 Returns by debtors 2,400 -- Branch transfer at selling price from Shatin To Tsuen Wan 960

Shatin Tsuen Wan $ $ Closing stock at selling price 91,680 117,000 Goods in transit from head office to Shatin At selling price 4,800 Expenses 26,800 34,500 Any stock unaccounted for may be regarded as pilferage and normal wastage.

Shatin Branch Branch Stock(SP) $ $ Bal b/f (100000*1.2) 120000 $ $ Bal b/f (100000*1.2) 120000 Branch debtors 800000 Gd sent to branch (806000*1.2) 967200 Return to HO (80000*1.2) 96000 Fire loss (64000*1.2) 76800 Branch adj.-reduction in selling price 13500 Branch Adjustment (Profit) $ $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) 20000 Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) 161200 Branch adj.-reduction in selling price 13500 Goods Sent to Branch(cost) $ $ Gd return to HO 80000 Branch stock 806000 Branch Debtors(SP) $ $ Branch stock 800000 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Fire loss 64000

Shatin Branch Branch Stock $ $ Bal b/f (100000*1.2) 120000 $ $ Bal b/f (100000*1.2) 120000 Branch debtors 800000 Gd sent to branch (806000*1.2) 967200 Return to HO (80000*1.2) 96000 Fire loss (64000*1.2) 76800 Branch adj.-reduction in selling price 13500 Branch debtors-return 2400 Branch Debtors $ $ Branch cash 340200 Branch stock 800000 Discount allowed 2000 Bad debts 500 Branch stock-return 2400 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Fire loss 64000 Discount allowed 2000 Bad debts 500

Shatin Branch Branch Stock $ $ Bal b/f (100000*1.2) 120000 $ $ Bal b/f (100000*1.2) 120000 Branch debtors 800000 Gd sent to branch (806000*1.2) 967200 Return to HO (80000*1.2) 96000 Fire loss (64000*1.2) 76800 Branch adj.-reduction in selling price 13500 Branch debtors-return 2400 Branch transfer 960 Branch Adjustment $ $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) 20000 Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) 161200 Branch adj.-reduction in selling price 13500 Branch transfer 160 (960*20/120) Goods Sent to Branch $ $ Gd return to HO 80000 Branch stock 806000 Branch transfer (960*100/120) 800

Shatin Branch Branch Stock $ $ Bal b/f (100000*1.2) 120000 $ $ Bal b/f (100000*1.2) 120000 Branch debtors 800000 Gd sent to branch (806000*1.2) 967200 Return to HO (80000*1.2) 96000 Fire loss (64000*1.2) 76800 Branch adj.-reduction in selling price 13500 Branch debtors-return 2400 Branch transfer 960 Pilferage & wastage(Bal fig) 5860 Bal c/f (91680+4800) 96480 1089600 1089600 Branch Adjustment $ $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) 20000 Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) 161200 Branch adj.-reduction in selling price 13500 Branch transfer 160 (960*20/120) Pilferage & wastage 5860 Branch P/L(Bal fig) 116800 Bal c/f(96480*20/120) 16080 181200 181200

Goods Sent to Branch $ $ Gd return to HO 80000 Branch stock 806000 Branch transfer (960*100/120) 800 HO Purchase(bal.fig.) 725200 806000 806000 Branch Debtors $ $ Branch cash 340200 Branch stock 800000 Discount allowed 2000 Bad debts 500 Branch stock-return 2400 Bal c/f 454900 800000 800000 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Fire loss 64000 Branch Adj.- gross profit 116800 Discount allowed 2000 Bad debts 500 Expense 26800 Net profit 23500 116800 116800

Tsuen Wan Branch

Tsuen Wan Branch Branch Stock $ $ Bal b/f (56000*1.3) 72800 $ $ Bal b/f (56000*1.3) 72800 Branch debtors 476840 Gd sent to branch (400000*1.25) 500000 Branch adj (400000*0.05) 20000 Branch Adjustment $ $ Bal b/f (56000*0.3) 16800 Branch stock (400000*0.25) 100000 Branch stock (400000*0.05) 20000 Goods Sent to Branch $ $ Branch stock 400000 Branch Debtors $ $ Branch cash 345320 Branch stock 476840

Branch Debtors $ $ Branch cash 345320 Branch stock 476840 Discount allowed 3000 Bad debts 800 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Discount allowed 3000 Bad debts 800

Tsuen Wan Branch Branch Stock $ $ Bal b/f (56000*1.3) 72800 $ $ Bal b/f (56000*1.3) 72800 Branch debtors 476840 Gd sent to branch (400000*1.25) 500000 Branch adj (400000*0.05) 20000 Gd sent to branch (800*1.25) 1000 Branch adj.(800*0.05) 40 Branch Adjustment $ $ Bal b/f (56000*0.3) 16800 Branch stock (400000*025) 100000 Branch stock (400000*0.05) 20000 Branch stock-branch transfer (800*0.25) 200 Branch stock (800*0.05) 40 Goods Sent to Branch $ $ Branch stock 400000 Branch stock-branch transfer 800

Tsuen Wan Branch Branch Stock $ $ Bal b/f (56000*1.3) 72800 $ $ Bal b/f (56000*1.3) 72800 Branch debtors 476840 Gd sent to branch (400000*1.25) 500000 Bal c/f 117000 Branch adj (400000*0.05) 20000 Gd sent to branch (800*1.25) 1000 Branch adj.(800*0.05) 40 593840 593840 Branch Adjustment $ $ Branch P/L(Bal fig) 110040 Bal b/f (56000*0.3) 16800 Bal c/f(117000*30/130) 27000 Branch stock (400000*025) 100000 Branch stock (400000*0.05) 20000 Branch stock-branch transfer (800*0.25) 200 Branch stock (800*0.05) 40 137040 137040

Goods Sent to Branch $ $ Branch stock 400000 HO Purchase(bal.fig.) 400800 Branch stock-branch transfer 800 400800 400800 Branch Debtors $ $ Branch cash 345320 Branch stock 476840 Discount allowed 3000 Bad debts 800 Bal c/f 127720 476840 476840 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Branch Adj.- gross profit 110040 Discount allowed 3000 Bad debts 800 Expense 34500 Net profit 71740 110040 110040

Preparation of the Final Accounts for the Head Office After calculating the branch profits or losses, the overall profit and loss for the head office can be computed

Account entries Transactions Accounting Entries Balance transferred from goods sent to branch account to the head office purchases account Dr Goods sent to branch Cr HO purchases/trading Branch net profit transferred to head office profit and loss account Dr Branch Profit and loss Cr HO P/L

Example-6

The following trial balalnce was extracted from the books of Joyce Ltd Trial Balance as at 31 December as at 31 Dec 1997 $ $ Share Capital 1656000 Profit and loss account 300900 Fixed assets 800000 Stock at Head Office,1Jan 1997 250000 Debtors/Creditors 774600 950000 Prov. for dep 200000 Purchases 3800000 Sales 3463200 Administrative expenses 225000 Selling expenses 108000 Bank and cash 456500

$ $ Branch stock 1 Jan 1997-Shatin 250000 - Tsuen Wan 120000 Branch adjustment- Shatin 20000 - Tsuen Wan 16800 6606900 6606900 Additional information: On 31 Dec 1997, stock in the HO was valued at $180000 The branches paid local expenses and remitted all the remianing cash received from debtors to the HO. NO entry had been made about the remittances from the branches. 3. Depreciation is to be charged on the fixed asset at 10% per annum on cost. Prepare final account for Joyce Ltd for the year ended 31 Dec1997