Study Note - 10

BRANCH AND DEPARTMENTAL ACCOUNTS

This Study Note includes

10.1 Branch Accounts

10.2 Departmental Accounts

10.1 BRANCH ACCOUNTS

A Branch is a subordinate division of an office.

Section 2(14) of the Companies Act, 2013 defines a Branch Office as-
• Any establishment described as a Branch by the Company
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

Final Accounts Method
Under this method, the profit or loss of the branch is ascertained by preparing the Branch Trading and Profit and
Loss Account in place of Branch Account.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 451

FINANCIAL ACCOUNTING

(a) At cost price

Branch Trading and Profit & Loss Account
Dr. Cr.
Particulars Amount Particulars Amount
` `
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 Branch, if any) ××× — Credit ×××
To Direct Expenses at Branch (if any) ××× By Closing Stock at Branch (at ×××
Cost)
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) ××× ×××

Illustration 1.
From the following particulars prepare Branch Trading and Profit and Loss Account in the books of Head Office:
The Delhi stores invoiced goods to its Patna Branch at cost which sells both for cash and credit. Cash received by
the branch is remitted to H.O. Branch expense are paid direct from the H.O. except petty expense which are met
by the branch.

Particulars Amount Particulars Amount

` `
Opening Balance: Rates & Taxes 3,000
Stock 5,000 Salary & Wages 6,000
Debtors 20,000 Petty expense by the branch 1,000
Petty Cash 1,000 Pilferage of goods 1,000
Goods from H.O. 50,000 Closing Balance:
Cash Sales 30,000 Stock 8,000
Credit Sales 40,000 Debtors 25,000
Sales Return 4,000 Petty Cash 800
Bad Debts 1,000
Discount Allowed 1,000
Goods returned to H.O. 5,000

452 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Solution:
In the books of H.O.
Branch Trading and Profit and Loss Account
for the year ended……………
Dr. Cr.

Particulars Amount Amount Particulars Amount Amount

` ` ` `
To Opening Stock 5,000 By Sales:
,, Goods sent to Branch 50,000 Cash Sales 30,000
Less: Returns 5,000 45,000 Credit Sales 40,000
Less: Return 4,000 36,000
,, Closing Stock 8,000
,, Gross Profit c/d 25,000 Add: Pilferage of Stock 1,000 9,000
75,000 75,000

To Pilferage of Stock 1,000 By Gross Profit b/d 25,000

,, Bad Debt 1,000
,, Discount Allowed 1,000
,, Rates & Taxes 3,000
,, Salaries & wages 6,000
,, Petty Expense 1,000
,, General P & L A/c 12,000
Net Profit transferred
25,000 25,000

(b) At Invoice Price

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, to ascertain the true profits.

Illustration 2.
X Ltd. has its H.O. in Delhi and a branch in Mumbai. H.O. supplied goods to its branch at cost plus 3313 %. From the
particulars given below prepare a Branch Trading Account in the books of H.O.

Particulars Amount Particulars Amount

` `
Opening Stock (I.P.) 40,000 Sales:
Goods sent to Branch (I.P.) 2,50,000 Cash 1,00,000
Return to H.O. (I.P.) 10,000 Credit 3,00,000
Discount allowed to customers 10,000
Closing Stock (I.P.) 60,000

It is estimated that 2% of the goods received are lost through natural wastage.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 453

FINANCIAL ACCOUNTING

Solution:
In the books of H.O.
Trading Account
for the year ended……………
Dr. Cr.

Particulars Amount Amount Particulars Amount Amount

` ` ` `
To Opening Stock 40,000 By Sales:
Less: Loading 10,000 30,000 Cash 1,00,000
Credit 3,00,000 4,00,000

,, Goods sent to Branch 2,50,000 ,, Closing Stock 60,000

Less: Returns to H.O. 10,000 Less : Loading 15,000 45,000
1
2,40,000 ( 4 × 60,000)
1
Less: Loading ( 4 × 2,40,000) 60,000 1,80,000
1 1
[3 on CP = 4 on SP]
,, Gross Profit c/d 2,35,000
4,45,000 4,45,000

Note:
1. Discount allowed to customer will appear in Branch Profit & Loss Account.
2. Loss through natural wastage is a normal loss and as such, the same should be charged against branch gross
profit. So, no adjustment is required.
Illustration 3.
Y Ltd. with its H.O. in Delhi invoiced goods to its branch at Patna at 20% less than the catalogue price which is cost
plus 50%, with instruction that cash sales were to be made at invoice price and credit sales at catalogue price less
discount at 15% on prompt payment.
From the following particulars, prepare the Branch Trading and Profit and Loss Account for the year ended 31st
March 2013 in H.O. books so as to show the actual profit and loss for the branch for the year.

Particulars Amount Particulars Amount

` `
Stock on 1.4.2012 (Invoice Price) 12,000 Discount allowed to Debtors 13,365
Debtors ( ,, ) 10,000 Expense 6,000
Goods received from H.O. (I.P.) 1,32,000 Remittance to H.O. 1,20,000
Cash sales 46,000 Debtors (31.03.2013) 11,000
Credit Sales 1,00,000 Cash in hand (31.03.2013) 5,635
Cash received from Debtors 85,635 Stock on 31.03.2013 (Invoice Price) 15,000
It was further reported that a part of stock at the branch was lost by fire (not covered by insurance) during the
year whose value is to be ascertained and provisions should be made for discount to be allowed to Debtors as on
31.03.2013 on the basis of years trend of prompt payment.

454 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Solution:
In the books of H.O.
Branch Trading & Profit and Loss Account
for the year ended 31st March, 2013
Dr. Cr.

Particulars Amount Amount Particulars Amount Amount

` ` ` `
To Opening Stock 10,000 By Sales:
100 Cash 46,000
(`12,000 x 120)
Credit 1,00,000 1,46,000
,, Goods sent to Branch
,, Closing Stock 12,500
100 1,10,000
(`1,32,000 x 120) 100
(`15,000 x 120
)
,, Gross Profit c/d 41,000 Add: Stock Destroyed 2,500 15,000
(Bal. fig.)
1,61,000 1,61,000

,, Branch Expense 6,000 By Gross Profit b/d 41,000

,, Discount Allowed 13,365
,, Stock Destroyed by fire 2,500
[` 3,000 – 500]
,, Provision for Discount 1,337
,, General Profit & Loss A/c 17,798
(Net Profit Transferred)
41,000 41,000

Working:
1. Cost price Catalogue Price Invoice Price (Cat. Price – 20%)
`100 = `100 + 50% = `150 – `30
=
`150 = `120
2. Stock Destroyed by fire

Particulars Amount Amount

` `
Opening Stock (I.P.) 12,000
Add: Goods Sent (I.P.) 1,32,000
1,44,000
Less: Cash Sales 46,000
Invoice value of goods sold on credit
120
(`1,00,000 x150) 80,000 80,000

Closing Stock (I.P.) 15,000 1,41,000

Stock Destroyed by fire 3,000

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 455

FINANCIAL ACCOUNTING

3. Provision for Discount on Debtors

100
Prompt payment by Debtors `89,100 (i.e., `13,365 x 15 )
89,100
Out of `1,10,000 (i.e., 1,00,000 + 10,000), Portion of prompt payment 1,10,000 × 100 = 81%
∴ for closing debtors of `11,000 prompt payment to be made for `8,910 i.e. (`11,000 × 81%)
50
So, Provision for Discount will be ` 8,910 x = ` 1,337
100
Wholesale and Retail profit at Branch
A branch may be operated both under the retail profit basis as well as under wholesale profit basis. For instance,
the cost price of a product is `100, the retail price is `160, and the wholesale price is `150. Now, under retail profit
basis there will be a profit of `60 (i.e., `160 - `100) earned by the branch. But if it is sold under wholesale basis, the
amount of profit will be `50. Usually, it is the usual practice to debit branch with wholesale profit basis to know the
usual profit made by a branch. For this purpose, H.O. Trading account will be credited with goods sent to branch
at wholesale price. At the same time, closing stock at branch should be valued as per wholesale price basis. For
this, H.O. should make proper reserve on closing stock at branch. The entry will be

Profit & Loss A/c ……………… Dr. (Wholesale price - Cost price.)
To Stock Reserve A/c

Illustration 4.
X Ltd. has a retail branch at Puri. Goods are sold at 60% profit on cost. The wholesale price is cost plus 40%. Goods
are invoiced from Delhi H.O. to branch at Puri at Wholesale price. From the following particulars ascertain the profit
made at H.O. and branch for the year ended 31st March 2013.

Particulars H.O. Branch

` `
Stock on 01.04.2012 7,00,000 ---
Purchase 42,00,000 ---
Goods sent to Branch (at invoice price) 15,12,000 ---
Sales 42,84,000 14,40,000
Stock on 31.03.2013 16,80,000 2,52,000
Expenses 80,000 40,000

Sales at H.O. are made only on wholesale basis and that at branch only to customers. Stock at H.O. is valued at
invoice price.

456 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Solution:
In the books of H.O.
Puri Branch Trading Account
for the year ended 31st March, 2013
Dr. Cr.

Particulars H.O. Branch Particulars H.O. Branch

` ` ` `
To Opening Stock (I.P.) 7,00,000 --- By Sales 42,84,000 14,40,000
,, Goods sent to Branch (I.P.) --- 15,12,000 ,, Goods sent to Branch (I.P.) 15,12,000 ---
,, Purchase 42,00,000 --- ,, Closing Stock
,, Gross Profit c/d 25,76,000 1,80,000 16,80,000 2,52,000
74,76,000 16,92,000 74,76,000 16,92,000

By Gross Profit b/d

80,000 40,000 25,76,000 1,80,000
To Expenses

,, Closing Stock Reserve

72,000 ---
on Branch Stock: By Opening Stock Reserve
2,00,000 -
40
(`2,52,000 x 140
) Provision for unrealized profit
4,80,000
40
On H.O. Stock: (`7,00,000 x 140)
---
40
(`16,80,000 x 140)

21,44,000
,, General P&L A/c
1,40,000
(Net profit Transferred) 27,76,000 1,80,000 27,76,000 1,80,000

Working:
Let Cost price `100; Wholesale Price = `100 + `40 = `140; Invoice price `140; Selling Price at H.O. `140.
Selling price at Branch `100 + `60 = `160.
As goods are sent to branch at wholesale price i.e., `140, branch stock should be valued at the same price.
Wholesale profit on opening stock of H.O. = `7,00,000 x 40 = `2,00,000
140
on Closing stock of H.O. = `16,80,000 x 40 = `4,80,000
140
on Closing stock of Branch = `2,52,000 x 40 = `72,000.
140

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 457

FINANCIAL ACCOUNTING

Illustration 5.

White ltd. With their head office at Kolkata, invoiced goods to their Ranchi branch at 20% less than list price, which
is cost plus 100%, with instruction that cash sales are made at invoice price and credit sales at list price. From the
following particulars, prepare branch stock account and branch stock adjustment account for the year ended
31.12.2018.

Stock on 1.1.2018 (at invoice price) ` 2,400

Debtors on 1.1.2018 ` 2,000

Cash received from debtors ` 17,127

Goods received from H.O (at invoice price) ` 26,400

Goods returned to H.O `200 Sales- cash: ` 9,200

Credit: ` 20,000

Expenses at branch ` 3,473

Remittance to H.O ` 24,000

Debtors on 31.12.18 ` 4,873

Stock on 31.12.2018 ` 3,520.

Solution:
IN THE BOOKS OF WHITE Ltd.
Ranchi Branch Stock Account
Dr. Cr.

Date Particulars Amount(`) Date Particulars Amount(`)

2018 To Balance b/d 2,400 2018 By Goods Sent to Branch 200

Jan. 1 Dec.31 A/c(return)

Dec.31 To Goods Sent to Branch 26,400 By Bank A/c(cash sales) 9,200

A/c

To Surplus in Stock A/c 120 By Branch Debtors A/c 20,000

To Ranchi Branch 4,000 By Balance c/d 3,520

Adjustment A/c(note 1)

32,920 32,920

458 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Ranchi Branch Stock Adjustment Account

Dr. Cr.

Date Particulars Amount(`) Date Particulars Amount(`)

2018 To Stock Reserve A/c(note 1,320 2018 By Ranchi Branch Stock 4,000
Dec.31 6) Dec.31 A/c(note 1)

To Gross Profit 13,450 By Stock Reserve 900

c/d(transferred to Branch A/c(note 4)
PL a/c)

By Surplus in Stock 45
A/c(note 3)

By Goods Sent to Branch 9,825

A/c(note 5)

14,770 14,770

Working Notes:

1. Let, cost price be ` 100. The list price is 100% of cost price.

Therefore, list price = 100+100 = 200.

The invoice price is 20% less than list price, i.e: `200 - 20% of `200 = `200-`40=`160.

Cash sales are made at invoice price, i.e: ` 160 whereas, credit sales are made at list price, i.e: ` 200. Amount
charged on credit sales is more than invoice price=`200-`160=`40. i.e: 40/200×100=20% of list price. Goods
sold on credit = `20,000-amount charged in excess of invoice price=20% of ` 20,000 = ` 4.000

2. If cost is ` 100 then invoice price is ` 160. Therefore loading on invoice price = 60/160×100

= 37.5%

Loading on surplus: 37.5% of 120= ` 45. This ` 45 represents loading. Therefore it is to be credited to branch
stock adjustment account. The balance ` 75(120-45) is to be credited to branch PL account.

3. Loading on opening stock = 37.5% of ` 2,400= ` 900

4. Loading on goods sent to branch(net) = 37.5% of (`26,400-200)= ` 9,825

5. Loading on closing stock = 37.5% of `3,520= ` 1,320

6. Expenses at branch of ` 3,473 will be charged to branch PL account

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 459

FINANCIAL ACCOUNTING

DEBTORS METHOD :
This method is usually adopted when the branch is of small size. Under this method, the head office maintains
separate Branch Account for each branch. Its purpose is to ascertain profit or loss made by each branch.
Journal Entries under Debtors Method:

Situation Journal
1. To record Opening Balances of Branch Assets Branch A/c Dr.
To Branch Assets (Individually)
2. To record Opening Balances of Branch Liabilities Branch Liabilities (Individually) Dr.
To Branch A/c
3. When goods are supplied by the Head Office/another Branch A/c Dr.
Branch to Branch
To Goods sent to Branch A/c
4. When goods are returned by the Branch / Branch Goods Sent to Branch A/c Dr.
Customers directly to the Head Office
To Branch A/c
5. When goods are supplied by the Branch to another Goods Sent to Branch A/c Dr.
Branch as per instructions of Head office
To Branch A/c

6. When goods are supplied by the Head office but not Goods-in Transit A/c Dr.
received by the Branch head
To Branch A/c
7. When the Head Office meets the branch expenses or Branch A/c Dr.
sends cash to the Branch for meeting expenses
To Cash/Bank A/c

8. When remittances are received by the Head Office Cash/Bank A/c Dr.
from the Branch/ Branch Customers
To Branch A/c
9. When remittances are sent by the Branch but not Cash in-transit A/c Dr.
received by the Head office
To Branch A/c
10. When the balance in Goods sent to Branch Account is Goods sent to Branch A/c Dr.
transferred
To Purchases A/c
(in case of Trading concerns) or,
To Trading A/c
(in case of manufacturing concerns)
11. To record the closing balances of Branch Assets Branch Assets A/c (Individually) Dr.
To Branch A/c
12. To record the closing balances of Branch Liabilities Branch A/c Dr.
To Branch Liabilities (Individually)
13. To record Profit or Loss Branch A/c Dr.
(i) If credit side exceeds the debit side To General Profit & Loss A/c
(ii) If debit side exceeds the credit side General Profit & Loss A/c Dr.
To Branch A/c

460 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Format of Branch Account

A format of Branch Account is given below:
BRANCH ACCOUNT
Dr. Cr.

Particulars ` Particulars `
To Balance b/d: By Balance b/d:
Stock XXX Creditors XXX
Debtors XXX Outstanding Expenses XXX
Petty Cash XXX By Bank (remittances to H.O.):
Fixed Assets XXX by Branch XXX
Prepaid Expenses XXX by Branch Debtors directly to H.O. XXX
To Goods sent to Branch A/c: By Goods Sent to Branch A/c:
Goods sent by H.O. XXX Returned by Branch XXX
Goods sent by other Branches XXX Returned by Branch debtors directly to H.O. XXX
To Bank (Remittances by H.O.) XXX Sent to other Branches XXX
To Balance c/d: By Balance c/d:
Creditors XXX Stock-in-hand XXX
Outstanding Expenses XXX Stock-in-transit XXX
*To Net Profit t/f to General P&LA/c XXX Cash in-transit XXX
Debtors XXX
Petty Cash XXX
Fixed Assets XXX
Prepaid Expenses XXX
*By Net Loss t/f to General P&LA/c XXX

XXX XXX
*Only one figure shall appear.

• The following transactions do not appear in the Branch Account:

(a) Expenses incurred by Branch out of cash, since either reduced cash balance at the end is decreased or
the liability at the end is increased.
(b) Purchase of Goods/Fixed Assets by Branch, since book value of Goods/Fixed assets at the end is increased
and either the amount of remittances is reduced or the Creditors at the end are increased.
(c) Sale of Goods/Fixed Assets by Branch since book value of Goods/Fixed assets at the end is decreased
and either the amount of remittances is increased or the Debtors at the end are increased.
(d) Bad debts, discount allowed, sales returns by customers to branch, cash received by Branch from Branch
Debtors, etc., since the debtors at the end appear at the adjusted figure.
(e) Depreciation and Profit/Loss on sale of fixed assets since fixed assets at the end appear at the adjusted
figure.
(f) Abnormal Losses since stock at the end appears at the adjusted figure.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 461

FINANCIAL ACCOUNTING

• When the branch is not authorised to keep any sum out of collections, expenses incurred by Branch out of
petty cash maintained may be dealt with as under:
(a) In case the petty cash is maintained on Imprest System, the expenses met by the branch are to be shown
in the same manner as the branch expenses met by the Head Office. In such a case, petty cash balance
at the end appears at the same amount at which it appears in the beginning.
(b) In case the petty cash is not maintained on Imprest System, the expenses met by branch are automatically
charged to the Branch Account since the petty cash at the end appears at the adjusted figure.
• When goods are returned either by Branch Debtors to the H.O. directly or are sent by one branch to another
branch, the entry will be same as in the case of goods returned by the Branch to the H.O.
• In case any insurance claim is admitted and paid to the Branch, either the Bank balance at the end will
increase or the remittances to H.O., will increase. In case, the insurance claim is admitted but not paid, the
insurance company will appear as a debtor at the end.
• To ascertain any missing figure, relating to Stock and /or Debtors, Memorandum Branch Stock Account &
Memorandum Branch Debtors Account has to be prepared.

Illustration 6.
From the following information, prepare Delhi Branch Account in the books of head office for the year ending on
31st March 2013:

Particulars ` Particulars `
Opening Stock (at cost) 17,80,000 Discount allowed to Customers 5,000
Opening Debtors 1,40,000 Bad Debts written off 10,000
Opening Petty Cash 2,500 Credit sales 72,94,000
Furniture (in the beginning) 60,000 Cash Sales 3,20,000
Opening Creditors 60,000 Petty Expenses paid by Branch 80,000
Goods sent to Branch (at Cost) 52,20,000 Cheques sent to Branch for
Goods returned by Branch to H.O (at cost) 78,000 expenses:
Goods returned by Customers to Branch 57,000 Salaries 3,00,000
Cash received by Branch from its Customers Rent and Insurance 1,20,000
61,10,000 Petty Cash 78,700

Goods are sold to customers at cost plus 50%. Depreciate the furniture @ 10% p.a.
Solution:
Delhi Branch Account in the books of H.O.
Dr. Cr.
Particulars ` Particulars `

To Balance b/d: By Balance b/d: creditors 60,000

Stock 17,80,000 By Bank A/c (Remittance from Branch) 64,30,000
Debtors 1,40,000 By Goods sent to Branch A/c
Petty Cash 2,500 (return by branch) 78,000
Furniture 60,000 By Balance c/d:
To Goods sent to Branch A/c 52,20,000 Stock 18,84,000
To Bank A/c (Remittance by H.O.) 4,98,700 Debtors 12,52,000
To Balance c/d (creditors) 60,000 Petty Cash 1,200
To Net Profit t/f to General P&L A/c 19,98,000 Furniture (` 60,000 – ` 6,000) 54,000
97,59,200 97,59,200

462 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Working Notes:
(i) Dr. Memorandum Branch Debtors Account Cr.

Particulars ` Particulars `
To Balance b/d 1,40,000 By Returns to Branch 57,000
To Credit Sales 72,94,000 By Discount allowed 5,000
By Bad Debts 10,000
By Cash received by Branch 61,10,000
12,52,000
By Balance c/d
74,34,000 74,34,000

(ii) Dr. Memorandum Branch Stock Account Cr.

Particulars ` Particulars `

To Balance b/d 17,80,000 By Goods sent to Branch A/c (Return) 78,000

To Goods sent to Branch A/c 52,20,000 By Cost of Goods sold 50,38,000
[(3,20,000+72,94,000 - 57,000)x100/150]
By Balance c/d 18,84,000
70,00,000 70,00,000

(iii) Dr. Memorandum Branch Petty Cash Account Cr.

Particulars ` Particulars `
To Balance b/d 2,500 By Petty Expenses A/c 80,000
To Remittance from H.O. 78,700 By Balance c/d 1,200
81,200 81,200

(iv) Dr. Memorandum Branch Cash Account Cr.

Particulars ` Particulars `
To Cash Sales 3,20,000 By Salaries 3,00,000
To Remittance by H.O. 4,98,700 By Rent & Insurance 1,20,000
To Debtors (Collection) 61,10,000 By Petty Cash 78,700
By Remittance to H.O. 64,30,000
69,28,700 69,28,700

Accounting Treatment of Goods Returned and Cash Remitted by Branch Customers directly to Head Office

Item Treatment in Branch A/c Treatment in Memorandum Branch

Debtors A/c
1. Goods returned by Treat like goods returned by Branch to H.O. Show the selling price of these
Branch customers and thus, show the Cost/ Invoice price (as the goods on credit side of Branch
directly to H.O. case may be) of these goods on credit side of Debtors Account.
Branch Account.

2. Cash remitted by Treat like cash remitted by branch to H.O. Show on the credit side of Branch
Branch customers and thus, show on the credit side of Branch Debtors Account.
directly to H.O. Account.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 463

FINANCIAL ACCOUNTING

Illustration 7.
Taking the same information as given in previous Illustration 3 along with the following information, prepare the
Delhi Branch Account:
(i) Goods returned by Branch Customers directly to H.O. ` 12,000
(ii) Cash remitted by Branch Customers directly to H.O. ` 2,80,000

Solution:
Delhi Branch Account
Dr. In the Books of H.O. Cr.

Particulars ` Particulars `
To Balance b/d: By Balance b/d: (creditors) 60,000
Stock 17,80,000 By Bank A/c (Remittance from Branch)
Debtors 1,40,000 Remittance by Branch 64,30,000
Petty cash 2,500 Direct Remittance by Branch
Furniture 60,000 customers 2,80,000
To Goods sent to Branch A/c 52,20,000 By Goods sent to Branch A/c:
To Bank A/c (Remittance by H.O.) 4,98,700 Return by Branch 78,000
To Balance c/d: (creditors) 60,000 Direct Return by Branch
To Net Profit t/f to General P&LA/c 19,94,000 customers [12,000 x 100/150] 8,000
By Balance c/d:
Stock 18,84,000
Debtors 9,60,000
Petty Cash 1,200
By Furniture (` 60,000 – ` 6,000) 54,000
97,55,200 97,55,200

Working Notes:
(i) Dr. Memorandum Branch Debtors Account Cr.

Particulars ` Particulars `
To Balance c/d 1,40,000 By Returns to Branch 57,000
72,94,000
To Credit Sales By Returns to H.O. 12,000
By Discount allowed 5,000
By Bad Debts 10,000
By Cash remitted to H.O. 2,80,000
By Cash remitted to Branch 61,10,000
By Balance c/d 96,0000
74,34,000 74,34,000

464 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

(ii) Dr. Memorandum Branch Stock Account Cr.

Particulars ` Particulars `
To Balance b/d 17,80,000 By Goods sent to Branch A/c:
To Goods Sent to Branch A/c 52,20,000 — Return by Branch 78,000
— Direct Return by Branch 8,000
Customers [` 12,000 x 100/150]
By Cost of Net Goods Sold [(3,20,000+72,94,000- 50,30,000
57,000-12,000)x100/150]
By Balance c/d
18,84,000
70,00,000 70,00,000
(iii) & (iv) Memorandum Branch Petty Cash Account and Memorandum Branch Cash Account - Refer to Working
Note [(iii) & (iv) of Illustration 5].

Accounting Treatment of Goods Sent to Another Branch and Goods received from Another Branch

Item Treatment in Branch A/c Treatment in Memorandum Branch

Stock A/c
1. Goods sent to Treat like goods returned to H.O. and thus, show Treat like goods returned to H.O. and
another branch on the credit side of Branch Account. thus, show on the credit side of Branch
Stock Account.
2. Goods received Treat like goods received from H.O. and thus, Treat like goods received from H.O.
from another show on the debit side of Branch Account. and thus, show on the debit side of
branch. Branch Stock Account.

Accounting Treatment of Normal Loss, Abnormal Loss, Insurance Claim and Agreed Allowance/Trade Discount

Item Treatment in Branch A/c Treatment in Memorandum Branch Stock

A/c
1. Normal loss Normal loss does not appear in the Cost/Invoice price (as the case may be)
Branch Account since the Closing Stock of normal loss appears on the credit side of
appears at the adjusted figure. Branch Stock Account in order to reduce
the figure of Closing Stock.
2. Abnormal loss Abnormal loss does not appear in the Cost/Invoice price (as the case may be) of
Branch Account since the Closing Stock abnormal loss appears on the credit side of
appears at the adjusted figure. Branch Stock Account in order to reduce
the figure of Closing Stock.
3. Insurance claim Shown on the credit side of Branch No Treatment
Account by way of Increased Closing
(a)Admitted and
either Cash/Bank Balance or remittance
received
to H.O.

(b)Admitted but not Shown Insurance Co. as a debtor at

yet received the end on the credit side of Branch
No Treatment
Account.
4. Agreed allowance/ Agreed Allowance/Trade Discount Cost/Invoice Price (as the case may be)
Trade discount does not appear in the Branch Account of Agreed Allowance/ Trade Discount
since the closing debtors appear at the appears on the credit side of Branch Stock
adjusted figure. Account.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 465

FINANCIAL ACCOUNTING

Illustration 8.
Prepare a Branch account in the books of Head Office from the following particulars for the year ended 31st March,
2013 assuming that H.O. sold goods at cost price 25%.

Particulars Amount Particulars Amount

` `
Stock on 1.4.2012 (I.P.) 12,500 Bad Debts 2,000
Debtors ( ,, ) 5,000 Allowances to customers 1,000
Purchase ( ,, ) 1,000 Returns Inwards 1,000
Goods sent to branch (I.P.) 40,000 Charges sent to Bank:
Goods return to H.O. (I.P.) 5,000 Rates & Taxes 3,000
Cash Sales 12,000 Salaries 8,000
Cash received from Debtors 30,000 Misc. Exps. 1,000
Stock on 31.03.2013 (I.P.) 15,000
Debtors ( ,, ) 4,000
Petty Cash ( ,, ) 1,000
Solution:
In the books of H.O.
Branch Account
Dr. Cr.
Particulars Amount Amount Particulars Amount Amount
` ` ` `
To Balance b/d By Stock Reserve (Loading) 2,500
Stock 12,500 ,, Bank A/c:
Debtors 5,000 Cash Sales 12,000
Petty Cash 1,000 18,500 ,, Cash Received from Debtors 30,000 42,000
,, Goods sent to branch 40,000 ,, Goods sent to branch 5,000
,, Bank A/c: (Return to H.O.)
Rates & Taxes 3,000 ,, Goods sent to branch 8,000
Salaries 8,000 (Loading)
Misc. Expenses 1,000 12,000 By Balance c/d
Stock 15,000
,, Goods sent to Branch 1,000 Debtors 4,000
(Loading on returns) Petty Cash 1,000 20,000
,, Closing Stock Reserve 3,000
1
(` 15,000 x 5)
,, General Profit & Loss A/c 3,000
77,500 77,500
25 1 1
Note: Here, loading is 125 = 5 of invoice price. Hence, loading on opening stock will be `12,500 x 5 = `2,500 and so on.

466 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

STOCK AND DEBTORS METHOD

When there are large number of transactions, this method is particularly maintained by the H.O. to make efficient
control over the branches. Under this method, we are to open (a) Branch Stock Account (at invoice price); (b)
Branch Debtors Account; (c) Branch Adjustment Account (for recording loading for goods and for ascertaining gross
profit) (d) Branch Profit and Loss Account (for ascertaining branch net profit) (e) Goods Sent to Branch Account.
In addition to above, there are certain accounts which may also be opened; viz (a) Branch Expense Account; (b)
Branch Cash Account; (c) Branch Fixed Asset Account (d) Abnormal Loss / Lost-in-Transit Account etc.
Under this method, the most important account is the Branch Adjustment Account which helps to ascertain Gross
Profit. It takes only the loading on Opening Stock, Closing Stock, Goods Sent to Branch, Goods Returned by Branch,
any abnormal loss, Surpluse of stock etc.

Apparent Profit and Apparent Loss

An unusual increase or decrease in the value of stock arises at Branch Stock Account due to inaccurate prediction
of the expected selling price of the goods which are invoiced by the H.O. Usually H.O. sent goods after charging
certain percentage of profit. But in reality, the said goods are sold either at a higher or at a lower price rather than
the price fixed by the H.O. for which Branch Stock Account shows either a surplus of stock which is known here as
Apparent Profit or a Shortage of stock which is known as Apparent Loss. The said apparent profit or loss should be
recorded as under.
(a) For Apparent Profit
Branch Stock A/c …………………….. Dr.
To Apparent Profit A/c
Apparent Profit A/c ……………………... Dr.
To Branch (Stock) Adjustment A/c

(b) In case of Apparent Loss, the entry will be reversed

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.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 467

FINANCIAL ACCOUNTING

2. Journal Entries :
No Transaction Journal Entry
(a) Goods sent to Branch by HO Branch Stock Account (total Value of goods) Dr.
To Goods sent to Branch (at Cost)
To Branch Adjustment A/c (loading, if any)
(b) Goods returned by Branch to Goods sent to Branch Account (at Cost) Dr.
HO Branch Adjustment A/c (loading, if any) Dr.
To Branch Stock A/c (total value of goods)
(c) Assets provided by HO to Branch Branch Assets Account Dr.
either by way of fresh purchase or To (Main) Cash Account/Vendor Account [or]
by way of transfer from HO To (HO) Assets Account
(in case of transfer)
(d) Cash sent to Branch for expenses Branch Cash Accout Dr.
To (Main) Cash Account
(e) Cash Sales at the Branch Branch Cash Account Dr.
To Branch Stock Account
(f) Credit Sales at the Branch Branch Debtors Account Dr.
To Branch Stock Account
(g) Collection from Branch Debtors Branch Cash Account Dr.
To Branch Debtors Account
(h) Sales Returns at the Branch Branch Stock Account Dr.
To Branch Debtors Account
(i) Discounts / Bad Debts etc. Branch Expenses Account Dr.
To Branch Debtors Account
(j) Various expenses incurred at Branch Expenses Account Dr.
Branch To Branch Cash Account
(k) Branch Expenses directly met by Branch Expenses Account Dr.
HO To (Main) Cash Account
(l) Remittances made by Branch to Head (Main) Cash Account Dr.
Office To Branch Cash Account
(m) Goods Lost in Transit/Stolen etc. Goods Lost in Transit A/c (at cost) Dr.
Branch Adjustment (loading if any) Dr.
To Branch Stock Account (total value of goods)
At the End of the Year : Closing Entries
(n) Recording Closing Stock at Closing Stock at Branch Account (incl. Loading) Dr.
Branch To Branch Stock Account
Excess of Sale Price over Invoice Branch Stock Account Dr.
(o) Price To Branch Adjustment Account
(p) Recording Unrealised Profit on Branch Adjustment Account Dr.
Closing Stock i.e. Stock Reserve (after To Stock Reserve (closing)
this entry, the Branch Adjustment Note : Stock Reserve on Opening Stock is credited to
Account will show Gross Profit) Branch Adjustment A/c.
(q) Recording Gross Profit at Branch Branch Adjustment Account Dr.
To Branch P & L Account
(r) Depreciation on Branch Assets, (if Branch Expenses Account Dr.
any) To Branch Assets Account
(s) Transfer of Branch Expenses Branch P & L Account Dr.
To Branch Expenses Account
(t) Recording Net Profit at Branch Branch P & L Account Dr.
To General P & L Account

468 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Illustration 9.
Multichained Stores Ltd. Delhi, has its branches at Lucknow and Chennai. It charges goods to its Branches at cost
plus 25%. Following information is available of the transactions of the Lucknow Branch for the year ended on 31st
March 2013:

Particulars Amount
`
Balances on 01.04.2012
Stock (at invoice price) 30,000
Debtors 10,000
Petty Cash 50
Transactions during 2012-13 (Lucknow Branch):
Goods send to Lucknow Branch (at invoice price) 3,25,000
Goods returned to Head Office (at invoice price) 10,000
Cash Sales 1,00,000
Credit Sales 1,75,000
Goods pilfered (at invoice price) 2,000
Goods lost by fire (at invoice price) 5,000
Insurance Co. paid to H.O. for loss by fire at Lucknow 3,000
Cash sent for petty expenses 34,000
Bad debts at Branch 500
Goods transferred to Chennai Branch under H.O. advice 15,000
Insurance charges paid by H.O. 500
Goods returned by Debtors 500
Balance on 31.03.2013
Petty Cash 230
Debtors 14,000

Goods worth `15,000 (including above) sent by Lucknow Branch to Chennai Branch was in-transit on 31.03.2013.
Show the following accounts in the books of Multichained Stores Ltd.: (a) Lucknow Branch Stock Account; (b)
Lucknow Branch Debtors Account; (c) Lucknow Branch Adjustment Account; (d) Lucknow Branch Profit & Loss
Account, and (e) Stock Reserve Account.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 469

FINANCIAL ACCOUNTING

Solution:
In the books of H.O.
Lucknow Branch Stock Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
2012 To Balance b/d 30,000 2013 By Branch Cash A/c –
Apr.1 Mar.31 Cash Sales 1,00,000
,, Branch Debtors
2013 ,, Goods sent to Branch A/c 3,25,000 Credit Sales 1,75,000 2,75,000
Mar. 31
,, Branch Debtors A/c 500 ,, Goods Sent to Branch A/c 10,000
(Returns Inward) Returned from Branch
,, Pilferage A/c 2,000
,, Lost by Fire A/c 5,000
,, Chennai Branch A/c 15,000
Goods transferred but
in-transit
,, Balance c/d 48,500
3,55,500 3,55,500

Lucknow Branch Debtors Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
2012 To Balance b/d 10,000 2013 By Branch P&L A/c –
Apr.1 Mar.31 Bad Debts 500
2013 ,, Branch Stock A/c – 1,75,000 ,, Branch Stock
Mar. 31 Credit Sales Returns Inward 500
,, Branch Cash A/c
Collection from Customers
(bal. fig.)
1,70,000
,, Balance c/d
14,000
1,85,000 1,85,000

470 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Lucknow Branch Stock Adjustment Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
2013 To Goods sent to Branch A/c 2013 By Balance b/d
Mar. 31 Load on goods returned 2,000 Mar. 31 Load on Opening Stock
(10,000 x 1 ) (` 30,000 x 1 ) 6,000
5 5
Branch Stock A/c ,, Goods sent to Branch A/c
Loading
,, Pilferage A/c
(` 3,25,000 x 1 )
(Loading) (` 2,000 x 1 ) 400 5 65,000
5

,, Lost by fire
1,000
(Loading) (` 5,000 x 1 )
5
,, Chennai Branch A/c
3,000
(Loading) (` 15,000 x 1 )
5
,, Branch Profit and Loss A/c
Gross Profit transferred
54,900
(bal. fig.)
,, Balance c/d
Load on Closing Stock
9,700
(` 48,500 x 1 )
5
71,000 71,000

Branch Profit and Loss Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
2013 To Branch Debtors A/c 2013 By Branch Stock
Mar. 31 Bad Debts 500 Mar.31 Adjustment A/c –
,, Insurance 500 Gross Profit 54,900
,, Pilferage (at cost) 1,600
,, Stock Lost by Fire 1,000
,, Petty Expenses 33,820
,, General P&L A/c – Branch
Profit transferred
17,480
54,900 54,900

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 471

FINANCIAL ACCOUNTING

Stock Reserve Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
31.03.13 To Stock Adjustment A/c 01.04.12 By Balance b/d 6,000
– Transfer 6,000 31.03.13 ,, Branch Stock
Adjustment A/c 9,700
,, Balance c/d 9,700
15,700 15,700
Workings:
The following two accounts should also be opened:
Stock Lost by Fire Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
31.03.13 To Lucknow Branch Stock A/c 5,000 31.03.13 By Branch Stock Adjustment A/c 1,000
,, Bank – Insurance claim 3,000
,, Branch P&L A/c (bal. fig.) 1,000
5,000 5,000
Petty Cash Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
01.04.12 To Balance b/d 50 31.03.13 By Branch P&L A/c –
31.03.13 Expenses (bal. fig.) 33,820
,, Cash - General 34,000 ,, Balance c/d 230

34,050 34,050

INDEPENDENT BRANCH
When there are voluminous transactions in a Branch, they prepare the accounts independently. They purchase and
sell goods independently and also sell the goods which are sent by H.O.. As the branches are owned by H.O., the
profit or loss so made by the branch is enjoyed by H.O. These branches prepare a Trial Balance, Trading and Profit
and Loss Account and a Balance Sheet at the end of the year. As such, they maintain a Head Office Account and
on contrary H.O. maintains a Branch Account. All sorts of transactions, e.g., remittance of cash, transfer of goods
etc. are to be passed through these accounts.
Needless to say that where H.O. receives the accounts from the branches, it incorporates profit of the branches as –
Branch A/c……………………….. Dr.
To Profit & Loss A/c
Sometimes, the balance of branch account in H.O. books and H.O. accounts in branch books do not agree. If
that be so, the same must be adjusted accordingly i.e., Goods-in-Transit or Cash-in-Transit etc. At last the Branch
Balance Sheet is amalgamated with H.O. Balance Sheet by eliminating inter-branch/H.O. transaction as per the
respective heads of assets and liabilities.

472 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

INDEPENDENT BRANCHES
Accounting Steps :

S No. Transaction HO Books Branch Books

1. Goods sent by H.O. to Branch Branch A/c Dr. Goods Recd. from H.O. A/c. Dr.
To Goods Sent to Branch A/c To H.O. A/c
2. Goods returned by Branch to Goods Sent to Branch A/c Dr. HO A/c. Dr.
H.O. To Branch A/c To Goods Recd. From H. O. A/c
3. Branch Expenses incurred at — Expenses A/c Dr.
Branch 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 H.O. 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 H.O. 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.
H.O. 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 To Branch Asset A/c To H.O. A/c
H.O.
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 Branch A/c To Goods recd. from H.O. A/c
(ii) Goods recd. from H.O. A/c Dr.
To H.O. A/c
15. Charging the Branch service Branch (Expenses) A/c Dr. Expense A/c Dr.
charges by H.O. To Service Charges A/c To H.O. A/c
16. Cash-in-transit Cash-in-transit A/c. Dr. Cash-in-transit A/c. Dr.
To Branch A/c. To H.O. A/c.
17. Goods-in-transit Goods-in-transit A/c. Dr. Goods-in-transit A/c. Dr.
To Branch A/c. To H.O. A/c.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 473

FINANCIAL ACCOUNTING

Illurstration 10.
Journalise the following transactions in the books of Head Office. Delhi Branch and Agra Branch :
(a) Goods worth ` 50,000 are supplied by Delhi Branch to Agra Branch under the instructions of Head Office.
(b) Delhi Branch draws a bill receivable for ` 40,000 on Agra Branch which sends its acceptance.
(c) Delhi Branch received ` 10,000 from Agra Branch.
(d) Goods worth ` 20,000 were returned by a customer of Agra Branch to Delhi Branch.
(e) Agra Branch collected ` 20,000 from a customer of Delhi Branch.

Solution :
Journal of Head Office
Dr. Cr.
Particulars L.F. Amount Amount
` `
(a) Agra Branch A/c Dr. 50,000
To Delhi Branch A/c 50,000
(Being the goods supplied by Delhi Branch to Agra Branch)
(b) Delhi Branch A/c Dr. 40,000
To Agra Branch A/c 40,000
(Being a B/R drawn by Delhi upon Agra Branch)
(c) Delhi Branch A/c Dr. 10,000
To Agra Branch A/c 10,000
(Being Cash sent by Agra Branch to Delhi Branch)
(d) Delhi Branch A/c Dr. 20,000
To Agra Branch A/c 20,000
(Being the goods returned by customer of Agra Branch
to Delhi Branch)
(e) Agra Branch A/c Dr. 20,000
To Delhi Branch A/c 20,000
(Being the Cash collected by Agra Branch from a
customer of Delhi Branch

Journal of Delhi Branch

Dr. Cr.
Particulars L.F. Amount Amount
` `
(a) H.O. A/c Dr. 50,000
To Goods sent to Branch A/c 50,000
(Being the goods supplied to Agra Branch)
(b) Bills Receivable A/c Dr. 40,000
To H.O. A/c 40,000
(Being the acceptance of a B/R received from Agra Branch)
(c) Cash A/c Dr. 10,000
To H.O. A/c 10,000
(Being the cash received from Agra Branch)
(d) Goods Sent to Branch A/c Dr. 20,000
To H.O. A/c 20,000
(Being the goods received from a customer of Agra Branch)
(e) H.O. A/c Dr. 20,000
To Debtors A/c 20,000
(Being the cash collected by Agra Branch from our customer)

474 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Journal of Agra Branch

Dr. Cr.
Particulars L.F. Amount Amount
` `
(a) Goods sent to Branch A/c Dr. 50,000
To H.O. A/c 50,000
(Being the goods received from Delhi Branch)
(b) H.O. A/c Dr. 40,000
To Bill Payable A/c 40,000
(Being a B/P accepted for Delhi Branch)
(c) H.O. A/c Dr. 10,000
To Cash A/c 10,000
(Being cash paid to Delhi Branch)
(d) H.O. A/c Dr. 20,000
To Debtors A/c
(Being the goods returned by customer of Delhi Branch) 20,000
(e) Cash A/c Dr. 20,000
To H.O. A/c
(Being the Cash received from a customer of Delhi Branch) 20,000

llustration 11.
A Delhi head office passes one entry at the end of each month to adjust the position arising out of inter- branch
transactions during the month. From the following inter-branch transactions in March 2013, make the entries in the
books of Delhi Head office.
(a) Kolkata Branch :
(i) Received goods from Patna branch ` 9,000 and Ahmedabad branch ` 6,000.
(ii) Sent goods to Ahmedabad branch ` 15,000 and Patna branch ` 12,000.
(iii) Sent acceptances to Patna branch ` 6,000 and Ahmedabad branch ` 3,000.
(b) Kanpur branch [apart from (a) above] :
(i) Sent goods to Ahmedabad branch ` 9,000.
(ii) Recived B/R from Ahmedabad branch ` 9,000.
(iii) Recived cash from Ahmedabad branch ` 5,000.

Solution :
Journal of Head Office
Dr. Cr.
Particulars L.F. Amount Amount
` `
Kanpur Branch A/c Dr. 5,000
Patna Branch A/c Dr. 9,000
Ahmedabad Branch A/c Dr. 7,000
To Kolkata Branch A/c 21,000

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 475

FINANCIAL ACCOUNTING

Statement of Inter-branch Transactions

Particulars Kolkata Kanpur Patna Ahmedabad

Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr
` ` ` ` ` ` ` `
Goods Received 15,000 – – – – 9,000 – 6,000
Goods Sent – 27,000 – – 12,000 – 15,000 –
Acceptance – 9,000 – – 6,000 – 3,000 –
Goods Sent – – – 9,000 – – 9,000 –
B/R Received – – 9,000 – – – – 9,000
Cash – – 5,000 – – – – 5,000

15,000 36,000 14,000 9,000 18,000 9,000 27,000 20,000

Balance 21,000 – – 5,000 – 9,000 – 7,000
36,000 36,000 14,000 14,000 18,000 18,000 27,000 27,000

Illustration 12.
Journalise the following transactions in the books of the Head Office.
(a) Goods returned by Thane Branch on 28th March, worth ` 10,000 to its Head Office not received by the head
office upto 31st March.
(b) Goods worth ` 20,000 sent by the Head Office to its Coimbatore Branch on 29th March, were received
on 3rd April following.
(c) ` 50,000 remitted by Coimbatore Branch to Head Office on 28th March was received on 4th April.

Solution :
Journal of Head Office
Dr. Cr.

Particulars L.F. Amount Amount

` `
(a) Goods-in-transit A/c Dr. 10,000
To Thane Branch A/c
(Being the goods returned by Thane Branch not yet received) 10,000
(b) Goods-in-transit A/c Dr. 20,000
To Coimbatore Branch A/c
(Being the goods sent to Coimbatore Branch not yet received by Branch) 20,000
(c) Cash-in-transit A/c Dr. 50,000
To Coimbatore Branch A/c
(Being the Cash sent by Coimbatore Branch not yet received) 50,000

Incorporation of Branch Trial Balance in Head Office Books.

While discussing independent branch in the previous paragraphs it has been stated that branch prepares its own
trial balance and the same is sent to the H.O. for incorporation. Naturally, after receiving the trial balance from
branch H.O. incorporates with its own accounts the same to prepare and ascertain the net result of the concern.
There are two methods for incorporating branch trial balance in H.O. Book.

476 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

It can be prepared in two ways :

(a) First Method
All revenue items are passed through Branch Trading and Profit & Loss Account and Profit or Loss so made (in the
Profit and Loss Account) together with assets and liabilities are passed through Branch Account for the purpose of
preparing consolidated Balance Sheet in the Books of H.O.

Incorporation Entries

(a) For all revenue expenses related to Trading A/c i.e. Opening stock, Purchase, Return
Branch Trading A/c Dr. Inwards, Wages and other items
appearing in the debit side.
To Branch A/c
(b) For all revenue incomes related to Trading A/c i.e. Sales, Closin g Stock and Return
Branch A/c Outwards and other items that
Dr.
appear in the credit side.
To Branch Trading A/c
(c) For gross profit of the Branch
Branch Trading A/c Dr.
To Branch P&L A/c

In case of gross loss, the entry will be reversed.

(d) For all revenue expenses related to P&L A/c i.e. items that appear in the debit side
Branch P & L A/c Dr. of the P & L Account.
To Branch (All Revenue Expenses) A/c

(e) For all revenue incomes related to P & L A/c i.e. items that appear in the credit
Branch (All Revenue Incomes) A/c side of the P & L Account.
Dr.
To Branch P&L A/c

(f) For net profit of the Branch

Branch P&L A/c Dr.
To General P&L A/c

In case of net loss, the entry will be reversed.

(g) For branch assets.
Branch Assets A/c Dr.
To Branch A/c
(h) For branch liabilities.
Branch A/c Dr.
To Branch Liabilties A/c

(b) Second Method / Abridged Method

This method is applicable only when net profit or net loss is given instead of detailed information about all revenue
expense and income. Under this method, only net profit/net loss will be transferred to Branch Account. Branch
Assets and Branch Liabilities will not appear in branch account and this branch account will show a balance. The
same must be equal to the difference between assets and liabilities, i.e., in other words, net worth of the business.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 477

FINANCIAL ACCOUNTING

Illustration 13.
Salt Lake Corporation presented the following trial balance on 31.03.2013 to the H.O. at New Delhi.

Particulars Debit Amount Particulars Credit Amount

` `
Delhi H.O. 6,480 Sales 76,000
Stock 1.4.2012 12,000 Goods supplied to H.O. 12,000
Purchase 35,600 Creditors 3,700
Goods Return From H.O. 18,000
Salaries 3,000
Debtors 7,400
Rent 1,920
Misc. Expense 940
Furniture 2,800
Cash and Bank 3,560
91,700 91,700
Additional Information:
The branch account on H.O. books on 31.03.2013 stood at ` 920 (Debit).
On 31.03.2013, the, H.O. forwarded goods to the value of `5,000 to the branch which are received on 3rd July.
A cash remittance of `2,400 by branch on 29th March 2013, was received by the H.O. on 2nd April 2013.
Closing Stock was valued at `5,400
Show the incorporation entries in the books of H.O. showing separate Branch Trading and Branch Profit and Loss
Account, and Prepare Branch Account and Branch Balance Sheet also in H.O. books.
(a) First Method
In the Books of H.O.
Journal Dr. Cr.

Date Particulars L/F Amount Amount

` `
31.03.13 Branch Trading A/c Dr. 65,600
To Branch A/c 65,600
(Items of Br. Trading incorporated)
` 12,000 + ` 35,600 + ` 18,000)
Branch A/c Dr. 93,400
To Branch Trading A/c 93,400
(Items of Br. Trading incorporated i.e.,
` 76,000 + ` 12,000 + ` 5,400)
Branch Trading A/c Dr. 27,800
To Branch Profit & Loss A/c 27,800
(Gross Profit transferred) [` 93,400 – ` 65,600]
Branch Profit and Loss A/c Dr. 5,860
To Branch A/c 5,860
(Item of Branch Profit & Loss incorporated i.e.,
` 3,000 + ` 1,920 + ` 940)

478 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Branch Profit and Loss A/c Dr. 21,940

To General Profit & Loss A/c 21,940
(Net Profit Transferred) [` 27,800 – ` 5,860]
Goods-in-Transit A/c Dr. 5,000
To Branch A/c 5,000
(Goods-in-Transit adjusted)
Remittance (Cash)-in-Transit A/c Dr. 2,400
To Branch A/c 2,400
(Remittance-in-Transit adjusted)
Branch Asset A/c Dr. 19,160
To Branch A/c 19,160
(Branch Asset incorporated) [` 2,800 + ` 5,400 + ` 7,400 + ` 3,560]
Branch A/c Dr. 3,700
To Branch Liabilities A/c 3,700
(Branch liabilities incorporated)

Dr. Branch Trading and Profit and Loss Account Cr.

Particulars Amount Amount Particulars Amount Amount

(`) (`) (`) (`)
To, Branch A/c By, Branch A/c
Stock 12,000 Sales 76,000
Purchase 35,600 Goods supplied to H.O. 12,000
Goods from H.O. 18,000 65,600 Closing Stock 5,400 93,400
To, Branch Profit and Loss A/c 27,800
(Gross Profit transferred) 93,400 93,400
To, Branch A/c By, Branch Trading A/c 27,800
Salaries 3,000 - Gross Profit
Rent 1,920
Office Expenses 940 5,860
To, General Profit and Loss A/c 21,940
(Net Profit transferred) 27,800 27,800

Branch Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
01.04.12 To Balance b/d 920 31.03.13 By Branch Trading A/c 65,600
,, Branch P&L A/c 5,860
31.03.13 ,, Branch Trading A/c 93,400 ,, Goods-in-Transit A/c 5,000
,, Branch Liabilities A/c ,, Remittance-in-Transit A/c 2,400
Creditors 3,700 ,, Branch Assets A/c
Furniture 2,800
Stock 5,400
Debtors 7,400
Cash 3,560 19,160
98,020 98,020

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 479

FINANCIAL ACCOUNTING

Branch Balance Sheet

as at 31st March, 2013

Liabilities Amount Assets Amount

` `
H.O. A/c Furniture 2,800
Opening balance (Dr.) 6,480 Stock 5,400
Less: Net Profit 21,940 15,460 Debtors 7.400
Creditors 3,700 Cash at Bank 3,560
19,160 19,460

(b) Second Method/Abridged Method

Branch Account
Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
01.04.12 To Balance b/d 920 31.03.13 By Goods-in-Transit A/c 5,000
,, Remittance-in-Transit A/c 2,400
31.03.13 ,, Branch P&L A/c 21,940 ,, Balance c/d 15,460*
Net Profit
22,860 22,860

* Note: This is the difference between Branch Assets and Branch Liabilities
(`19,160 – `3,700) = `15,460.

Closing of Branch Books

Branch closes its accounts at the end of the financial year by passing the following entries:
In this situation Accounts can be prepared by two methods.
Method – 1
All revenue items are passed through H.O. Account.
Journal entries
(a) For all revenue expenses that appear in the debit side of Branch Trading A/c
H.O. A/c Dr.
To Opening Stock A/c 

,, Purchase A/c  Actual amount
,, Goods Received from H.O. A/c


,, All revenue expenses
(b) For all revenue incomes that appear in the credit side of Branch Trading A/c
Sales A/c Dr. 

Closing Stock A/c Dr.  Actual amount

All revenue incomes A/c Dr. 
To H.O. A/c

480 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

(c) For all Branch Assets:


H.O. A/c Dr.  Actual amount

To Branch Assets A/c
(d) For all Branch Liabilities: 

Branch Liabilities A/c Dr.  Actual amount
To H.O. A/c
Method - 2
In this case, net profit or net loss is transferred to Head Office Account. But treatment of branch assets and branch
liabilities will remain the same.
(a) For Net Profit:
Profit & Loss A/c Dr.  with the amount of net profit

To H.O. A/c 
(b) For Net Loss:
H.O. A/c Dr.  with the amount of net loss

To Profit & Loss A/c 
Illustration 14.
A Chennai Head Office has an independent Branch at Ahmedabad. From the following particulars, give journal
entries to close the books of the Ahmedabad Branch. Show also the Chennai Head Office account in the branch
books.
Ahmedabad Branch
Trial Balance as at 31st December, 2013

Liabilities Amount Assets Amount

` `
Stock on 1st January 8,200 Creditors 2,700
Purchases 12,800 Sales 34,950
Wages 6,550 Head Office 14,000
Manufacturing Expenses 3,400 Discount 150
Rent 1,700 Purchase Returns 300
Salaries 5,500
Debtors 4,000
General Expenses 2,000
Goods received from H.O. 7,200
Cash at Bank 750
52,100 52,100

(a) Closing Stock at Branch ` 14,350.

(b) The branch fixed assets maintained at H.O. books were: Machinery ` 25,000, Furniture ` 1,000 Depreciations
are to be allowed at 10% on Machinery and 15% on Furniture.
(c) Rent due ` 150.
(d) A remittance of ` 4,000 made by the Branch on 29th Dec. 2013 was received by Head Office on 4th January,
2014.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 481

FINANCIAL ACCOUNTING

Solution:
(i) As per Method 1
In the books of Branch
Journal Dr. Cr.
Date Particulars L/F Amount Amount
` `
31.12.13 Depreciation A/c Dr. 2,650
To Head Office A/c 2,650
(Depreciation on fixed assets maintained in head office
books @ 10% on Machinery and 15% on Furniture)
Rent A/c Dr. 150
To Outstanding Rent A/c 150
(Rent Outstanding)
Cash-in-Transit A/c Dr. 4,000
To Head Office A/c 4,000
(Cash remitted to H.O. but not received within
31st December)
Head Office A/c Dr. 50,150
To Opening Stock 8,200
,, Purchases 12,800
,, Wages 6,550
,, Manufacturing Expenses 3,400
,, Rent (1,700 + 150) 1,850
,, Salaries 5,500
,, General Expenses 2,000
,, Goods received from H.O. 7,200
,, Depreciation 2,650
(Above items transferred to H.O. A/c)

Discount A/c Dr. 150

Sales A/c Dr. 34,950
Purchase Returns A/c Dr. 300
Closing Stock A/c Dr. 14,350
To Head Office A/c 49,750
(Above items transferred to H.O. A/c)
Head Office A/c Dr. 23,100
To Closing Stock A/c 14,350
,, Debtors A/c 4,000
,, Bank A/c 750
,, Cash-in-Transit A/c 4,000
(Assets transferred to H.O. A/c)
Creditors A/c Dr. 2,700
Outstanding Rent A/c Dr. 150
To Head Office A/c 2,850
(Liabilities transferred to H.O. A/c)

482 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Dr. Head Office Account Cr.

Date Particulars Amount Date Particulars Amount

` `
31.12.13 To Sundries- (debit balance of 50,150 31.12.12 By Balance b/d 14,000
Revenue items)
,, Depreciation A/c 2,650
,, Sundry Assets
23,100 ,, Cash-in-Transit A/c 4,000
,, Sundries –Credit Balance of
Revenue items 49,750
,, Sundry Liabilities 2,850
73,250 73,250

(ii) As per Method 2

In the books of Branch
Journal Dr. Cr.
Date Particulars L/F Amount Amount
` `
2013 Depreciation A/c Dr. 2,650
Dec. 31. To Head Office A/c 2,650
(Depreciation on fixed assets @ 10% Monthly and @ 15% or
Furniture in H.O. Books.)
Rent A/c Dr. 150
To Outstanding Rent A/c 150
(Rent Outstanding)
Cash-in-Transit A/c Dr. 4,000
To Head Office A/c 4,000
(Cash remitted to H.O. but in transit)
Head Office A/c Dr. 400
To Profit & Loss A/c 400
(Net Loss Transferred.) [ ` 50,150 – 49,750]
Head Office A/c Dr. 23,100
To Closing Stock 14,350
,, Debtors 4,000
,, Cash at Bank 750
,, Cash-in-Transit 4,000
(Asset transferred to H.O. A/c)
Creditors A/c Dr. 2,700
Outstanding Rent A/c Dr. 150
To Head Office A/c 2,850
(Various Liabilities transferred to H.O. A/c)

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 483

FINANCIAL ACCOUNTING

Head Office Account

Dr. Cr.

Date Particulars Amount Date Particulars Amount

` `
31.12.13 To Profit & Loss A/c 400 31.12.13 By Balance b/d 14,000
Net Loss ,, Depreciation A/c 2,650
,, Closing Stock A/c 14,350 ,, Cash-in-Transit A/c 4,000
,, Debtors A/c 4,000 ,, Credit A/c 2,700
,, Cash at Bank 750 ,, Outstanding Rent 150
,, Cash-in-Transit A/c 4,000
23,500 23,500

Illustration 15.
A merchant of Kolkata opens a new branch in Mathura, which trades independently of the Head Office. The
transactions of the Branch for the year ended 31.3.2013 are as under :

Particulars Amount Amount

` `
Goods supplied by Head Office 20,00,000
Purchases from outsiders :
— Credit
— Cash 15,55,000
Sales : 3,00,000 18,55,000
— Credit
25,05,000
— Cash
4,60,000
29,65,000
Cash received from Customers 30,45,000
Trade Creditors Paid 14,25,000
Expenses paid by Branch 8,95,000
Furniture purchased by Branch on credit 3,50,000
Cash received from Head Office initially 4,00,000
Remittances to Head Office 11,00,000

Prepare the Trading and Profit and Loss Account, Balance Sheet, Head Office Account in the books of Branch :
1. The account of the Branch Fixed Assets are maintained in the Head Office books.
2. Write off depreciation on furniture at 5 percent per annum for full year.
3. A remmittance of ` 2,00,000 from the Branch to the Head Office is in transit.
4. The Branch value its closing stock at ` 12,00,000.

484 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Solution :
IN BRANCH BOOKS
1. Trading and Profit and Loss Account for year ended 31.3.2013
Particulars Amount Amount Particulars Amount Amount
` ` ` `
To Goods Supplied by HO 20,00,000 By Sales :
To Purchase — Credit 25,05,000
— Credit 15,55,000 4,60,000 29,65,000
— Cash
— Cash 3,00,000
18,55,000
To Gross Profit c/d
3,10,000 By Closing Stock 12,00,000

41,65,000 41,65,000
To Expenses 8,95,000 By Gross Profit b/d 3,10,000
To Depreciation on 17,500 By HO — Transfer of 6,02,500
Furniture net loss

9,12,500 9,12,500

2.
Dr. Branch Cash Account Cr.

Particulars Amount Particulars Amount

` `
To Head Office (initial Receipt) 4,00,000 By Cash Purchases 3,00,000
To Cash Sales 4,60,000 By Trade Creditors 14,25,000
To Trade Debtors By Expenses
30,45,000 8,95,000
By Head Office A/c
11,00,000
— Remittance
By Balance c/d
1,85,000

39,05,000 39,05,000

3.
Dr. Head Office Account Cr.

Particulars Amount Particulars Amount

` `

To Creditors for Furniture 3,50,000 By Cash (Initial Receipt) 4,00,000

To Cash (remittance) 11,00,000 By Goods received from HO A/c 20,00,000
To Profit & Loss A/c 6,02,500 By Depreciation on Furniture 17,500
(Loss for the Year) By Cash in Transit 2,00,000
To Balance c/d
5,65,000
— balancing

26,17,500 26,17,500

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 485

FINANCIAL ACCOUNTING

4. Balance Sheet as on 31.3.2013

Liabilities Amount Assets Amount

` `

Sundry Trade Creditors 1,30,000 Closing Stock 12,00,000

(` 15,55,000 – ` 14,25,000)
Creditors for Furniture 3,50,000 Cash in Transit 2,00,000
Advances from Trade Debtors 5,40,000 Cash in Hand 1,85,000
(` 30,45,000 – ` 25,05,000) (As per Cash Book)
Head Office A/c 5,65,000

15,85,000 15,85,000

Illustration 16.
The Head Office of Z Ltd. and its Branch keep their own books prepare own Profit and Loss Account. The following
are the balances appearing in the two sets of the books as on 31.3.2013 after ascertainment of profits and after
making all adjustments except those referred to below :

Particulars Head Office Branch Office

Dr. (`) Cr. (`) Dr. (`) Cr. (`)
Capital — 1,00,000 — —
Fixed Assets 36,000 — 16,000 —
Stock 34,200 — 10,740 —
Debtors & Creditors 7,820 3,960 4,840 1,920
Cash 10,740 — 1,420 —
Profit & Loss — 14,660 — 3,060
Branch Account 29,860 — — —
Head Office Account — — — 28,020
Total 1,18,620 1,18,620 33,000 33,000

Prepare the Balance Sheet of the business as on 31.3.2013 and the journal entries necessary (in both sets of books)
to record the adjustments dealing with the following :
1. On 31.3.2013, the branch had sent a cheque for ` 1,000 to the head office, not received by them nor credited
to the branch till next month.
2. Goods valued at ` 440 had been forwarded by the head office to the branch and invoiced on 30.3.2013, but
were not received by the branch nor dealt with in their books till next month.
3. It was agreed that the branch should be charged with ` 300 for Administration Services, rendered by the Head
Office during the year.
4. Stock stolen in transit from the Head Office to the Branch and charged to the Branch by the Head Office but
not credited to the Head Office in the Branch Books as the Manager declined to admit any liability, ` 400 (not
covered by insurance).
5. Depreciation of Branch Assets, of which accounts are maintained by the Head Office, not provided for ` 250.
6. The balance of Profits shown by the Branch is to be transferred to HO Books.

486 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Solution :
1. Balance Sheet of Z Ltd. as at 31.03.2013

Liabilities Amount Amount Assets Amount Amount

` ` ` `

Capital 1,00,000 Fixed Assets :

Add : Net Profit of : —Head Office
—Head Office —Branch 36,000
14,560 Less : Depreciation 16,000
—Branch 1,17,070
2,510 (250) 51,750

Creditors :
Stock :
—Head Office 3,960 —Head Office 34,200
—Branch 1,920 5,880 —Branch 10,740
—Goods in Transit 440 45,380
Debtors :
—Head Office
7,820
—Branch 12,660
4,840
Creditors:
—Head Office
—Branch 10,740
—In Transit 1,420 13,160
1,000

1,22,950 1,22,950

2. Journal Entries in the books of Head Office Dr. Cr.

Sl. No. Particulars Amt. (`) Amt. (`)

1 Goods in Transit A/c Dr. 440

To Branch A/c 440
(Being the goods invoiced on 30.3.2013 not yet received by the branch as on the
Balance Sheet date)
2 Branch A/c Dr. 300
To Profit & Loss A/c 300
(Being amount of Administrative Services rendered by the HO to the Branch)
3 Profit & Losss A/c Dr. 400
To Branch A/c 400
(Being the amount of uninsurd stock stolen on way to Branch)
4 Branch A/c Dr. 250
To Branch Fixed Assets 250
(Being depreciation on Branch Fixed Assets for which accounts are maintained in
the Head Office books)
5 Branch Profit & Loss A/c Dr. 2,510
To Profit & Loss A/c 2,510
(Being Profit shown by the Branch Profit & Loss Account transferred to (General) Profit
& Loss Account)

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 487

FINANCIAL ACCOUNTING

3.
Dr. Head Office Profit and Loss Account Cr.

Particulars Amount Particulars Amount

` `
To Branch — Uninsured Stock stolen 4 0 0 By Balance b/d 14,660
To Profit — Transferred By Branch Administration
14,560 300
Expenses
14,960 14,960

4. Journal Entries in the books of Branch Office

Dr. Cr.

S. No. Particulars Amt. (`) Amt. (`)

1 Cash in Transit A/c Dr. 1,000
To Head Office A/c 1,000
(Being cash sent on 31.3.2013 not yet received by the HO)
2 Profit & Loss A/c Dr. 300
To Head Office A/c 300
(Being administrative services rendered by the Head Office)
3 Profit & Loss A/c Dr. 250
To Head Office A/c 250
(Being depreciation on Branch Fixed Assets for which accounts are maintained
in the Head Office books)

4 Profit & Loss Account Dr. 2,510

To Head Office A/c 2,510
(Being profit transferred to Head Office Account)

5.
Dr. Branch Profit and Loss Account Cr.

Particulars Amount Particulars Amount

` `
To HO A/c – Administrative Services 300 By Balance b/d 3,060
To HO A/c – Depn. on Branch Assets 250
To Profit – Transferred to HO Account 2,510

3,060 3,060

488 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

Illustration 17.
Puskar Enterprise has its H.O. in Ranchi and a branch in Imphal. The following Trial Balance has been extracted from
the books of accounts as at 31st March, 2013:

Particulars Head Office Branch Office

Dr. Cr. Dr. Cr.
` ` ` `
Capital --- 16,50,000 --- ---
Debtors 3,00,000 --- 1,80,000 ---
Creditors --- 1,50,000 --- ---
Purchases 27,42,000 --- --- ---
Sales --- 25,50,000 --- 13,11,000
Goods sent to Branch at I.P. --- 11,40,000 11,25,000 ---
Fixed Assets (Net) 10,50,000 --- 2,00,000 ---
Stock (1.4.2012) 24,000 --- 60,000 ---
Stock Adjustment (Unrealised Profit) --- 12,000 --- ---
H.O./Branch Current A/c 5,25,000 --- --- 3,60,000
Administrative & Selling Expenses 8,41,500 --- 74,500 ---
Cash and Bank 46,500 --- 39,000 ---
Provision for Bad Debts --- 27,000 --- 7,500
55,29,000 55,29,000 16,78,500 16,78,500

Other relevant information:

(1) All goods are purchased by the H.O. Goods are sent to branch at cost plus 25%.
(2) Stock 31.3.2013 are valued at:
H.O. ` 36,000
Branch ` 45,000 (Invoice Price)
(3) Depreciation is to be provided on fixed assets at 10% on book value.
(4) Bad debts provision is to be maintained at 5% on debtors as at the end of the year.
(5) Cash-in-transit from branch to H.O. at 31st March 2013 was `1,50,000.
(6) Goods-in-transit from H.O. to branch at 31st March, 2013 at invoice price was `15,000.

Prepare in Columnar from, the branch and H.O. Trading and Profit and Loss Accounts for the year ended 31st
March, 2013 and a combined Balance Sheet of Puskar Enterprises as on that date.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 489

FINANCIAL ACCOUNTING

Solution:
In the books of H.O.
Columnar Trading and Profit and Loss Account
Dr. Cr.
Particulars H.O. Branch Particulars H.O. Branch
` ` ` `
To Opening Stock 24,000 60,000 By Sales 25,50,000 13,11,000
,, Purchases 27,42,000 --- ,, Goods Sent to Branch 11,40,000 ---
,, Goods from H.O. --- 11,25,000 ,, Closing Stock 36,000 45,000
,, Gross Profit c/d 9,60,000 1,71,000
37,26,000 13,56,000 37,26,000 13,56,000
To Adm. & Selling Exp. 8,41,500 74,500
,, Depreciation 1,05,000 20,000 By Gross Profit b/d 9,60,000 1,71,000
,, Stock Adjustment 12,000 --- ,, Stock Adjustment 12,000 ---
(for closing) (for opening)
20% of (45,000+15,000) ,, Provision for Bad 27,000 7,500
,, Provision for Bad Debts 15,000 Debts (old)
(new) 9,000

Net Profit 25,500 75,000

9,99,000 1,78,500 9,99,000 1,78,500

Balance Sheet (Combined)

as at 31st March 2013
Liabilities Amount Amount Assets Amount Amount
` ` ` `
Capital 16,50,000 Fixed Assets 12,50,000
Add: Net Profit 1,00,500 Less: Depreciation 1,25,000 11,25,000
(25,500 + 75,000) 17,50,500 Current Assets
Current A/c – H.O. 5,25,000 Stock
Less: Branch (Cr.) 3,60,000 H.O. 36,000
Cash-in-transit 1,50,000 Branch 45,000
Goods-in-transit 15,000 5,25,000 81,000
Nil Less: Stock Adj. 12,000 69,000
Creditors 1,50,000
Goods-in-Transit 15,000
Debtors
H.O. 3,00,000
Branch 1,80,000
4,80,000
Less; Prov. for Bad Debts 24,000 4,56,000
Cash at Bank
H.O. 46,500
Branch 39,000
Cash-in-transit 1,50,000 2,35,500
19,00,500 19,00,500

490 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA

Branch and Departmental Accounts

10.2 DEPARTMENTAL ACCOUNTS

Introduction
Departmental Accounts helps in identifying the performance of each department. Each department is considered
to be an Activity Centre. It is a tool which helps management in decision-making.
Departmentation offers the following advantages —
a. Proper Allocation : Expenses that relate to a particular department are estimated on an exact basis. Hence,
cost and profits of each department is estimated more accurately.
b. Control : Availability of separate cost and profit figures for each department facilitates control. Proper
control and fixation of responsibility is easier.
c. Proper absorption : The processing times of different products in different departments may vary. Specific
cost analysis on a department-wise basis facilitates scientific cost absorption and cost assignment. This
provides the right platform for product-pricing decisions also.
Difference between Branch Account and Departmental Account
The main differences between a Branch Account and a Department Accounts are:

Sl. No. Points Branch Accounts Departmental Accounts

1 Allocation of In case of branch accounting allocation Allocation of common wealth is the
expenses of common expenses does not arise. fundamental consideration here.
2 Result of the It shows that trading result of each It shows the trading result of each individual
operation individual branch. department.
3 Maintenance of Method of Branch Accounting depends It is centrally maintained.
accounts on the nature and type of branch
whether dependent or independent.
4 Types of It is practically a condensation of It is a segment of accounts.
accounting accounts.
5 Control It is not possible to control all branch Effective control is possible by the
by the H.O. departmental supervisors who is closely
related and who is to keep a constant
watch over the departments.

Bases of Apportionment of Expenses :

Nature of Treatment Examples

Expense
Specific When a certain expense is specifically • Depreciation of machinery on value of machinery;
Charge incurred for one department, it should be • Insurance on stock on the value of stock.
charged in full to that department only.
When benefits of certain expenses are • Rent is apportioned based on Floor
Shared shared by all departments and are Space occupied by each department.
Common capable of precise allocation, they • Lighting Expenses is apportioned basis of on the
Expenses should be apportioned to all departments number of light points (or) on the basis of floor area.
on an appropriate and equitable basis. • Canteen subsidy on the basis of No. of workers.
General Common expenses which are not capable • Administration Expenses like Office Salaries may be
Expenses of accurate apportionment to various apportioned equally among all departments or
departments are dealt with judiciously, alternatively debited to General P&L Account.
based on facts and circumstances of • Selling and Distribution Expenses may be apportioned
each case. based on Sales ratio.

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 491