LESSON 12

BRANCH ACCOUNTS
Branch and Department
Generally a business is split into many parts for the purpse to capture the
market at different places or to have better management. If the different
parts, usually, selling the same products or rendering the same services, are
located at different places in the same town or in different towns, they are
know as branches and when the various parts are located under the same
roof, they are known as departments. A firm which has branches naturally
wants to know the profit earned and loss suffered at each branch,, the
systemn of accounting will naturally depended on the type of branch.
Branches may be divded as under:-
(a) Branches which receive goods only from head office, selling goods only
for cash, remitting all cash received to the head office, expenses being met
out of remittance from the head office.
(b) Branches similar to the above except that goods are sold for cash and
credit.(c) Branches similar to above (b) with the difference that head
office invocies goods to the branch at selling price or at a price which is high
er than Cost price and the office passes entries with the invoice price.
(d) Branches making their own purchases and manufacturing goods and
functioning more or less cases as an autonomous units.
(e) Foreign branches, i.e. branches located in a foreign country. We will
not study the accounting for such branches it is not in the syhalbs.
Usually, account for the first three types branches are kept by the head
office, The fourth and fifth type of branches generally maintain an
independent st of books of accounts.
The simplest case of branch is one where branch receives ggoods only from
H,.o., sells goods only for cash depositing the same with the bank in the
name of H.O., and H.O., itself pays all branches’ expenses and record goods
sent to branch at cost.
H.O. maintains a Branch Account to ascertain profits and loss made at the
branch. Here ‘Branch Account’ is in the nature of Trading and Profit and
Loss Account. Al;l investment in the form of goods and expenses incurred in
respect of branch are recorded on the debit side of the ‘Branch Account’ -
Whereas sale proceeds, closing stock and other items of income are
recorded on the credit side of this account, if credits exceed debits, it
means a profit at the branch which is transferred to profit & Loss Account
where as id debit exceeds credits, it means a loss at branch which, like the
profit a branch, is transferred to Profit & Loss Account. The entries to be
made in the Head office books are :-
(a) When goods are sent to Branch
*Branch Account Dr.
To Goods sent to Branch Account
(For Cost Price of goods sent to Branch)
* If the branch returns some goods to H.O., a reverse entry will be passed
with the Cost price of Goods returned.
(b) When branch expenses are met
Branch Account Dr.
To Cash/Bank Account
(For payment for branch expenses)
(c) When sale proceeds deposited by Branch with the bank in the name of
Head Office :- Bank
Account Dr.
To Branch Account
(For sale proceeds deposited with the Bank)
(d) When at the end of the year some goods are lying with the Branch
unsold.
Branch Stock Account Dr.
To Branch Account
(For cost Price of goods lying at the branch at the end of the year)
(e) When Branch Account reveals a profit
** Branch Account Dr.
To Profit asnd Loss Account
(For transfer of branch profit from Branch Account to profit & Loss Account)
(f) Branch Stock account will appear in the Balance Sheet of Head Office.
In the beginning of the next year, this account is transferred t Branch
Account by means of the following en try:-
Branch Account Dr.
To Branch Stock Account
(For Cost of Branch Stock as at the beginning of the year)
(g) Goods sent to Branch Account must be transferred at the end of the
year to Purchase Account in case of trading concern and to Trading Account
in the case of manufacturing concern. The entry will be :-
Goods Sent to Branch Account Dr.
To Purchase Account/Trading Account
(Transfer of Balance in Goods sent to Branch Account to Purchase/Trading
Account)
(h) If the branch sells goods on credit also, a few additional entries will
have to be made. For cash received from branch debtors during the year,
following entry will be passed :-
Bank Account Dr.
To Branch Account
(For cash received from Branch debtors)
** If Branch Account reveals a loss, a reverse entry will be passed with the
amount of loss.
(i) At the end of the year, the following entry will be passed with the total
amount due from the Branch
Account debtors as at the date:-
Branch Debtors Account Dr.
To Branch Account
(For closng branch debtors)
Branch Debtors will apear in the Balance Sheet of the H.O. and will be
transferred to Branch Account in the beginning of the next account period.
Note:- Sometime H.O. may send sme cash to the branch to meet opetty
cash expenses at the branch. At the end of the year, some cash may be lying
with the branch. The amount should be treated in the same way as stock at
branch is treated.
Illustration 1
From the following particulars relating to Bangaslore Branch for the ending
31st December, 1994 prepare the accounts in the head office books:-
Rs.

Stock at Branch on 1st January, 1994 17,800

Branch Debtors on 1st January, 1994 9,400
Petty Cash at Branch on 1st January 1994 40
Goods sent to Branch during the year 56,800
Cash Sales during the year 31,600
Credit Sales during the year 80,800
Cash received from the debtors 75,800
Cash sent to Branch for expenses :-
Rent 4,000
Salaries 12,000
Petty Cash 2,000
Stock at Branch on 31st December 1994 10,800
Petty Cash at Branch on 31st December, 1994 60
Goods returned by the Branch 1,600
Solution:
Bangalore Branch Account
Dr.
Cr.

Date Particulars Amount Date Particulars Amount

Rs. Rs.
1994 1994

Jan., 1 To Balance Jan.lBy Cash Cash Sales

b/d toReceived from
 17,800 Dec.,31Debtors 31,600
Stock 75,800
Debtros
9,400
Petty Cash Goods sent to Brach

40 27,240 1,07,400
Jan.l Account
To Goods
to
sent to
Branch Stock A/c Branch
Debtors A/c Petty Cash
Dec.,31 1,600
Branch at Branch Account
Account 56,800
10,800
To Cash for
”” Expenses:
Rent
Salary 4,000
14,400
Petty 12,000
18,000 60
To Profit 2,000 1,34,260 1,34,260
transferred
to

Profit &
Loss 32,220
Account

Memorandum Branch Debtors Account

Dr.
Cr.
To Balance b/d 9,400 By Cash 75,800
To Credit Sales 80,800 By Balance c/d 14,400
90,200 90,200

Godds sent to Branch Account

Rs. Rs.

1994 1994

Jan.l To Bangalore Branch 1,600 Jan. 1 By Bangalore Branch 56,800

to to

A/c returns Account

Dec. Dec.
31 31
To Purchase Account 55,200
Transfer 56,800 56,800
Dec.31
Branch Stock Account
Rs. Rs.

1994 1994

Jan.l To Balance b/d 17,800 Jan.l To Transfer to Bangalore 17,800

Branch A/c

Dec.31To Banglore Branch 10,800 Dec. 10,800

A/c 28,600 31 By balance c/d 28,600

1995 10,800

To Balance b/d
Jan.l
Branch Debtors Account
Rs. Rs.

1994 1994

Jan. l To Balance b/d 9,400 Jan.l To Transfer to Bangalore 9,400

A/c

Dec. To Bang lore Branch 14,400 Dec. 14,400

31 A/c 31 By Balance c/d

14,400
1995 To Balance b/d
23,800 23,800

Jan.l
Petty Cash at Branch Account

Rs. Rs.

1994 1994

Jan.l To Balance b/d 40 Jan.l By Bangalore Branch A/c 40

Dec. To Balngalore Branch 60 Dec.31 By Balance b/d 60

A/c
100 100

1995 60

To Balance b/d
Jan.l
Note: No entry is made for credit sales at branch in the H.O. books. The
cash received from the debtors will be remitted to the H.O. along with Cash
received for Cash Sales. The H.O. makes no entry for cash received by it. It
will debit cash, credit branch. By the same token, the H.O. makes no entry
for discounts allowed, bad debt written off or returns by the Branch
debtors. It the branch has received to bill of exchange, it will be sent to the
H.O.
The entry then will be to debit Bills Receivable Account and Credit Branch
Account.
Type (c)
In this case, goods are invoiced to the Branch at selling price. In order to
ascertain the profit, a justment entries will have to be made for the
difference between the invoice value of goods sent in branch and their cost.
Similarly stock at branch will be valued at invocie value but, again suitable
adjustment will be necessary to ensure that stock does not appear in the
Balance Sheet at more than the cost.
The entries in respect of goods sent to Branch and Stock will be as follows:-
(a) When goods are sent to branch Dr.
Branch Account

(For invoice price of the goods sent

to branch)

(b) For stock lyiog at branch at the end

of the Trading period

Dr.
Stock at Branch Account

To Goods sent to Branch Account

To Branch Account
(For invoice price of the goods lying at the branch athe end of the year)
(c) For adjustment in the Value of goods sent
Goods sent to Branch Account Dr. To Branch
Account
(For loading invoice price of goods sent to branch)
If some goods have been returned by the branch to Head Office the above
mentioned entyr will be passed only for the loading in invoice price f goods
Sent to branch less invocie price of the goods returned by branch.
4. For adjustment in the value of Closing Stock
Branch Account Dr.
To Stock Reserve Account
(Loading in the amount of closing stock at branch
credited to Branch Stock Reserve Account and debited to Branch A/c)
In the begining of the next year, Branch Stock Reserve Account will be
transferred to Branch Account by means of the following entry:
Branch Stock Reserve Account Dr.
To Branch Account
(Transfer of Branch Stock Reserve Account to Branch Account)
Illustration 2
Mohan Stores of Delhi has a branch at kanpur, goods are sent by the head
office at invoice price which is at a profit of 20% on invoice price. All
expenses of the branch are paid by the head office. From the following
particulars prepare branch account in the Head Office books:-
Opneing balance
Rs.
Stock at invoice
price
22,000
Debtors
3,400
Petty
Cash
200
Goods sent to branch at invocice
price 40,000
Expenses paid by H.O.
Rent 1,200
Wages 400
Sales and other expenses
1,800 3,400
Remittances made to Head Office
Cash Sales 5,300
Cash collected from Debtors
42,000 47,300
Goods returned by branch at invocie price 800
Balance at the end:
Stock at Invoice
price
26,000
Debtors at the
end
4,000
Petty
Cash
250
Solution:
Branch Account
Dr.
Cr.
To Opening balances: By Stock reserve
Stock (loading) of stock in the
Debtors beginning
22,000 4,400
By Goods sent to branch
(loading) By Cash Sales
Petty Cash
3,400 ByCash Collected from 8,000
 Customers
To Good sent to branch 200 25,600 5,300
Account

40,000 42,000 47,300

To Bank Rent Wages By Goods returned to
Salary & other H.O. By Balance:
Expenses
1,200 Stock

800
To Stock reserve
400 Debtors
(loading) on

Closing Stock 1,800 3,400 Petty Cash 26,000

To Goods returned 4,000

(loading) To Net Profit

5,200 250 30,250

160

16,390
90,750 90,750
Illusration:
Naresh Stores Ltd. operate a retail branch at Madras All purchases are made
by the Head Office in Calcutta, goods being charged out to the branch at
selling price which is cost plus 50%. All cash received by the branch in
remitted to Calcutta. Branch expenses are paid out of an imprest account
which is reimbursed by Calcutta monthly Branch helps a sales ledger and
subsidiary books but other wise all branch transactions are recorded in the
books of the Calcutta Office. On April 1,1990 Stock in trade at Madras, at
selling price, amounted to Rs. 2,76,900 and debtors to Rs. 54,800.
During 1990-91 the following transactions took be place at the branch.
Rs. Goods received from Calcutta at selling
price 9,37,200
Cash
Sales
5,21,000
Credit Sales les
returns
4,23,700
Goods returned to Calcutta at selling
price 14,400
Agreed Allownces to customers off selling price
(already taken into account while
involing) 8,200
Cash receiving from
debtors
3,98,600
Discount allowed to
debtors
97,000
Bad debts written
off
4,800
Expenses
1,43,800
On 31 March, 1991 Stock in trade at Madras was found to amount to Rs
2,45,100
You are required to (a) write up the Branch Stock Account, and (b) prepare
the Trading and Profit and Loss Account at the Branch for the year 1990-91
Solution :
Madras Branch Stock Account
Rs. Rs.

To Balance b/d To Goods 2,76,900 By Sales- Cash

sent to Branch Account 5,21,000
9,44,700
Credit
4,23,700
9,37,200 8,200

By Allowance to Customers 14,400

By Goods Sent & Branches

1,700

By Shortages (Balancing
2,45,100
figure) By Balances c/d
12,14,100 12,14,100
Branch & Trading and Profit & Loss Account

Rs. Rs.

To Opening Stock (Cost) 1,84,600 By Sales: Cash

(2,76,900-92,300) Credit
To Goods Sent to Branch By Closing Stock
5,21,000
(Cost) (9,37,200 - 14,400 -
3,07,600) Gross Profit 9,44,700
(2,45,700-81,700) By
4,23,700
Gross Profit
6,15,200
To Discount To Bad debts
To Expenses To Nel Profit 3,08,300 1,63,400
11,98,100 11,08,100
9,700 3,08,300

4,800
 1,43,800

1,50,000
3,08,300 30,800

Stock and Debtors System

Account of balance of type (c) can also be prepared in another manner
known as the Stock and Debtors system a Branch Stock Account is mantained
whose balance at any time shows the selling price of goods lying at the
branch, a Branch Debtors Account is maintained whose balance at any time
reveals the amount recoverable by the branch from its debtor at that
particular time a Branch Expenses Account to show total expenses incurred
in connection with the branch by the branch and H.O. a Branch Adjustment
Account to reveal gross profit or gross loss at the branch and a Branch Profit
and Loss Account to reveal net profit, or net loss made at the branch.
Sometimes Branch Profit and Loss A/c merged into Branch Adjustment
Account which is then made to reveal net profit or net loss instead of gross
profit or gross loss. Under the method the entires are made as follows:
1. Where goods are sent to a Branch
Branch Stock Account Dr.
To Goods sent to Branch Account
(For invoice price of goods sent to Branch Account)
Note : The above entry is reversed if goods are returned by branch t Head
Office.
2. When expenses are incurred for the Branch
Branch Expenses Account Dr.
To Cash/Bank Account
(For payment made by H.O. for tranch expenses)
3. When sales are made at the branch
(a) Cash/Bank Account Dr.
To Branch Stock Account
(For cash sales made at the branch)
(b) Branch Debtors Account Dr.
To Branch Stock Account
(For credit sales made at the branch)
4. When Cash is received n account of
Branch Debtors Cash/Bank Account Dr.
To Branch Debtors Account
(For cash received from branch debtors)
5. When goods are returned by the Branch Debtors to Branch
Branch Stock Account Dr.
To Branch Debtors Account
(For goods returned by Debtors to Branch)
6. When any allowance is made to branch debtors, say discount.
Branch Expenses Account Dr.
To Branch Debtors Account
7. When there is any leakage, loss or wastage at the Branch
Branch Stock Adjustment Account Dr. (with loading)
Branch Profit and Loss Account
Dr. (with Cost price)
To Branch Stock Account (With invoice price)
Note : To above entry is reversed if there is surplus in any stock. For the
excess of selling price over charged on goods sent ot branch;

8. Goods sent to Branch Account Dr.

To Branch Stock Adjustment Account
9. For the Adjustment of the invoice price of the closing stock.
Branch Adjustment Account Dr. With the
difference in the invoice
To Stock Reserve Account price of the stock and
the Cost value of stock.
(The Stock Reserve Account, will be carried to the next accouting year and
then transferred to the creidt Branch Adjustment Account)
10. For transfer of Branch Expenses Account to Branch Profit & Loss
Account
Branch Profit & Loss Account Dr.
To Branch Expenses Account
11. For transfer of Gross profit revealed by branch adjustment account to
Branch profit & Loss Account
Branch Adjustment Account Dr.
To Branch Proft & Loss Account
The aboive entry will be reversed if there is a Gross loss.
12. For transfer of Net Proft revealed by Branch proft & Loss Account to
General proft & Loss Account
Branch profit & Loss Account Dr.
To (General) profit & Loss Account
The entry will be reversed in case of Net Loss.
13. For transfer of balance in Goods sent to Branch Account to Trading
Account or Purchase Account
Goods sent to Branch Account Dr.
To Trading Account/Purchases Accounts
Illustration 3
Oils Ltd. opened a branch at kanpur in 1993. Goods are invoced to the
branch at cost plus 25%. The following figures are given to you for 1993 and
1994 ascertain the profit or Loss made in two years by stock and debtors
system:
Rs. Rs.
To Goods sent to Branch (Inv. Value) 1,40,400 2,65,200
Sales -Cash 50,00080,000

Credit
70,000 1,60,000
Cash received from Debtors 62,4001,51,400
Discount allowed to Customers 1,6002,600
Goods returned by customers 2,0001,500
Cash remitted to Branch for:
Rent 1,2001,500
Salaries 6,0008,000
Sundry Expenses 9601,000
Stock at Branch as on 31st December 47,800
Solution:
Branch Stock Account
Rs. Rs.

1993 1993

To Goods sent to Jan,l By Cash Sales (2) 50,000

1,40,400
Jan.l Branch Account
(l)

Dec., Dec. By Branch Debtors A/c

31 To Branch Debtors 31
2,000 70,000
A/c
Credit Sales (3) By
BalanceC/d
22,400
Returns
1,42,400 1,42,400

1994

Jan.l
 To Balance b/d
22,400

Goods sent to Branch Account

Rs. Rs.

1993 1993
) 28,080 1,40,400
Dec.31 Branch Jan.l By Branch Stock A/c (1)
Adjustment A/c 1,12,320 to
(8
1,40,400 1,40,400
Dec.31
To Purchase
Account (11)

Branch Debtors Account

Rs. Rs.

1993 1993

Jan.l To Branch Stock 70,000 Jan. lBy Cash (4) 62,400

A/c to
Dec.,
To Credit Sales (3) 31

Dec. By Branch Stock A/c Returns 2,000

”
31 (5) By Branch Exp. A/c
Discount (7) By Balance c/d
1,600

4,000
 70,000 70,000

1994 4,000

Jan. 1 To Balance b/d

Branch Expenses Account
Rs. Rs.

1993 1993

Jan. 1 To Cash-Rent (6) 1,200 Dec.31By Branch Adjustment

Salaries
9,760
S. Exp. 6,000 A/c Transfered (10)

To Branch Debtors
960
A/c

Discount (7)
Dec.
31
1,600
9,760 9,760

Branch Adjustment Account

Rs. Rs.

1993 1993

Dec.31 To Stock Reserve Dec.31By Goods sent to Branch A/c 28,080

 A/c 4,480

20% as Rs, 22400 9,760

(9) To Branch Exp.
A/c General profit
& Loss A/c transfer

13,840
28,080 28,080

Stock Reserve Account

Rs. Rs.
1993 By Branch Adjustment A/c (4)
By Balance b/d
1993
Dec.
31
To Balance c/d 4,480 Dec.31 4,480
4,480 4,480
1994

Jan. 1

Note : Figure in Brackers show the setps and entries to be completed.

Branch Stock Account
Rs. Rs.

1993 1993

Jan.lTo Balance b/d 22,400 Jan. 1By Cash Sales 80,000

To Goods sent to to
 ”Branches A/c Dec.
To Branch 31
Debtors
to 2,65,200 By Branches Deb. A/c
1,60,000
Dec.A/c Returns Credit Sales
31 Dec. 1,300
31
1,500 By Branch Adj . A/c -
Wastage* By Balance c/d
47,800
2,89,100 2,89,100

To Balance b/d 47,800

1994

Jan.l
Goods sent to Branch Account
Rs. Rs.

1993 1993
53,040 2,65,200
Dec. To Branch Adj. Jan 1 By Branch Stock A/c
31 A/c to
2,12,160
2,65,200 2,65,200
” ” To Purchases A/c Dec.
31

Branch Debtor Account

Rs. Rs.
 1993 1993

Jan.l To Balance b/d 4,000 Jan.l By Cash 1,51,400

Dec.31

Jan.l To Branch Stock By Branch Stock A/c

to A/c
1,60,000 1,500
Returns
Dec. Credit sales
2,600
31
By Branch Exp. A/c
Discount 8,500
1,64,000 1,64,000
By Balance c/d

1994

To Balance b/d
Jan.l 8,500

* The wastage is found as a balancing figure after putting the figure of

closing stock on the credit side.
Branch Expenses Account
Rs. Rs.

1993 1993

Jan. l To Cash-Rent 1,500 Dec.31By Branch Adj. A/c

 13,100
Salaries 8,000 Transfer

Sun Exp. 1,000 1994

Dec.
31 To Branch Debtors Jan.l
A/c

2,600
Discount 13,100 13,100

Stock Reseve Accounts

Rs. Rs.

1993 1993

Dec.31 To Branch Adj. A/c Jan.l By Balance b/d 4,480

4,480
Transfer Dec.31By Branch Adj. c/d
9,560
Dec. To Balance c/d (reseve required 9,560
31 14,040 closingstock) 14,040

1994
9,560
Jan., l
By balance b/d
Branch Adjustment Account
Rs. Rs.
1993 1993
ec.,
31
Dec., To Branch Adj., A/c D By Stock Reserve A/c transfer 4,480
31

Reserve required on
closing stock
To Branch Stock A/c
9,560
By Goods sent to
Wastage

Branch A/c 53,040

To Branch Exp. A/c
1,300
To profit & loss A/c
(transfer of Net
Profit) 13,100

33,560
57,520 57,520
Distinction between whole-sale and retail profit at branch
Sometimes, the manufacturers of goods sell there goods on retail basis also.
In such cases they supply the goods to these retail branches at a price at
which it is supplied to the wholesalers theus keeping them at par with the
wholesalers. Since goods are sold by branches at retail price which is more
than wholesale price, therefore, the difference between their sale price and
wholesae price only will be taken to be profit earned by the branch. For
example the cost of an article may be Rs. 100, the wholesales price is Rs.
130 If the articles are sent to branch and sold there, the proft revealed
according to the above method will be Rs. 30 (retail Price minus the cost.) It
is apparent, however, that by selling goods throguh branch Profit is only Rs.
10 Rs. 20 could have been earned by selling the goods on whole-sale basis to
others. For knowing the true profit at retail branches, the practice adopted
sometimes is to charge the branch with wholesale price and then to
ascertain the profit. The Head Office Trading Account will then be credited
with goods sent to branches at wholesale price and not at cost.
It must be remembered however, that the stock at the end of the year at
the branch will be valued at wholesale price. Therefor, the Head Office
must create a proper reseve by debtiting its own profit & Loss account in
order to show the branch stock at cost in the Balance Sheet.
Illustration 4
A Ltd. has a retail branch at Nagpur and goods are sold to customers at cost
plus 100%. The wholesale price is cost plus 80 %. Goods are invoiced to
Nagpur at wholesale price. From the following particulars find out the profit
made at Head office and Nagpur for the year 1993-9
H.O. Nagpur

Stock on July
1,1993 25,000

Purchases
1,50,000 — Goods sent to Branch (Invoice
Price)
54,000 — Sales
1,53,000
50,000
Stock on 30th, June
60,000 1,000

Sales at H.O. are made only on whole-sale basius and that at Branch only to
customers. Stock at branch is valued at Invoice Price.
Trading Account for 1993-94
Particulars H.O. Rs. Nagpur Particulars H.O. Rs. Nagpur
Rs. Rs.
To Opening Stock 25,000 — By Sales 1,53,000 50,000

To Purchases 1,50,000 —
To Goods received By Goods sent to
from H.O.
54,000 —
To profit & Loss A/c
54,000 Branch
60,000 9,000
Gross profit By Closing Stock
92,000
5,000
2,67,000 59,000 2,67,000 59,000
110
Profit & Loss Account 1993-94
Particulars H.O. Nagpur Particulars H.O. Nagpur

Rs. Rs. Rs. Rs.

To Stock Reserve By Gross profit 92,000 5,000
against for

160
80,000×

200

4,000 —

To Net Profit
(Subject to exp.) 88,000 5,000
92,000 5,000
92,000 5,000

Branch Stock A/c

Had the solution been attempted on the usual lines it would have been as
follows:-
Trading and Profit & Loss Account for 1993-94
Particulars Head Nagpur Particulars Head Nagpur
Office Office

Rs. Rs.
Rs. Rs.
To Opening Stock 25,000 By Sales 1,53,000 50,000

To Purchase 150,000 By goods Sent

to

To goods setn to 30,000

(at cost)-

54,000 × 100

By Closing
Stock
60,000 5,000

(at cost)
30,000

68,000 25,000
243,000 55,000 243,000 55,000

Branch at cost 180

Illustration:
A head office sends goods to its Branch at 20% less than its lisepitce. Goods
are sold to customers at cost plus 100% from the following particulars
ascertain the profit made at the head office and the branch in case of
branch on the wholesale basis.
Opening show of cost
Head Office Branch
Rs. Rs.
(at invocie price in case of Branch)
40,000 32,000
Purchases 200,000
Goods Sent ot Branch(at invoice price ) 96,000
Sales
1,70,000 80,000
Expenses
14,000 8,000
Solution
H.O Branch By Sales No. Branch

Rs. Rs. Rs. Rs.

To Opening stock 40,000 32,000 By goods sent to 170,000 80,000

To Purchases 2,00,000 Branch A/c 96,000

To Goods From. H.O 96,000 By closing Stock

To Gross Profit c/d
64,000
1,21,000 16,000 95,000
3,61,000 144,000 3,61,0001,44,000
To Expenses
14,000 8,000 1,21,00016,000
By Gross Profet b/d
To Stock Reserve

By Stock Reserve
against Brncb stock against branch
24,000
opening stick
60
64,000 ×

60
160 32,000 ×
 160

To Net Profit
95,000 8,000 12,000
1,33,00 16,000 133,000 16,000
Calculation of closing stock
Head Branch
office
Rs. Rs.
Opening stock 40,000 32,000 (at invoice
price)
Purchases 2,00,000
Goodds from (HO) 96,000 (at invoice
price)
2,40,000 1,28,000
96,000 × 100

Less cost of goods sent to Barnch

160

60,000

1,70,000 × 100

Less cost of sales to Outisders

80,000 × 160

200

85,000
For Branch
200

64,000
95,000 64,000
Independent Branch
So far we have studied branches which did not keep books of account. Now
we s shall deal with branches keeping their own accooounts.
The Heaaad Office will open its own books an account called “Branch
account to shich goods or cash sent will be debited. When cash is recieved
from the branch , thebranch account will be credited. This account is
maintained more or less /like personal accounts so that any expenses
incurred on behalf of the branch will also be debited the account. The
balance of this account shows hw much money the branch owes to Head
Office.
Similarly the branch will have “Head Office Account” in its books “goods”
or Cash recieved from Head office be credited and goods and cash sent to
Head Office debited.
The balance in the account is usually credit and indicates the amount owed
by branch to the Head Office.
The balance in the branch account (Head Office books ) should agree with
the balance in the Head
Office account ((branch books). But due to goods or cash in transit this may,
not be so. ITgpods are sent by the Head Officce it will pass an entry
immediately but the branch will record the receipt of goods only on their
receipt. There will surely be some cash to Head Office, it will record it
immediately but the Head Office will wait till actual receipt. On the daate
of closing of accooounts, ggoods or cash in transit, the Head Office will have
to pass the folloowing entry:
Goods in Transit Dr.
To Branch Account
Similarly, for cash sent by the branch but still in transit the branch will pass
the entry; Cash in Transit
Account Dr.
To Head Office Account
Both Goods and Cash in transit are assets and should be shown in the
balance sheet:
Note: If in examination problems, there is a difference in the balance
shown by th Head Offece and Branch Accounts; the difference should be
assumed to be due to either gods in transit or cash-intransit. Suppose in the
Head Office boods, branch account shows debit balance to Rs. 26,000/- and
in the branch books. Head Office account shows a credit balance of Rs.
21,000/ - worth of goods or cash is in transit.
Now we shall take up certain other are peculiar to an independent nranch.
Account of fixed assets at the Branch are usually maintained in Head Office
books and not in branch books even if the asset is originally paid by the
branch.
When such an assset is acquired and branch pays for it, the branch passes
the following entry: Head Office
Account Dr.
To Cash/Bank Account
The Head Office will pass the following entry on receipt of advice from
Branch: Branch Fixed Asset (by
name) Dr.
To Branch Account
If Head Office pay s for it, it wiill debit Branch Fixed Asseett Accoount and
will credit cash. Branch passses no entry. Regarding depppreciation there is
no peculiarity if the accounts of fixed assets are maintained in the branch
books. But if accounts of such asssets are maintained in Heaad Office books,
the entry in respect of depreciation will be:
Branch Account Dr.
To Branch Fixed Assets Account
In the branch books the entry will be:
Depreciation Account Dr.
To Head Office Account
Head Officce always does some work on behalf of the branch and thus Head
Office Charges a reasonable amount from the branch. For that the Branch
passes the following entry:
Head Office Expenses Account Dr. To Head Office
Account
Head Office will pass the following entry:
Branch Account Dr.
To Salaries Account (Or Profit & Loss Account)
There may be inter branch transactions. Suppose A Branch sends goods to B
branch, the various entries to be passed are as follows:
In A’s books:
Head Office Account Dr.
To Goods sent to Branch Account
In B’s books :
Goodds received from Head Office Account Dr.
To Head Office Account
The Head Office will, of course, keep accounts of all the branches and will
also record inter branch transactions.
If, therefore , goods are supplied by A Branch to B Braanch the Head Office
will Pass the following entry :
A Branch Account Dr.
To B Branch Account
Illustration 5
Nagrik Cloth Ltd., had a branch at Rohtak. Preliminary account prepared by
Rohtak Branch for 1994 showed a profit of Rs. 11,400 without considering
the following:
Cash remitted to the Head Office not yet
received 3,600
Goods sent by the H.O. not yet received at
Rohtak 4,400
H.O. expenses charged to
Branch 3,200
Depreciation on Branch assets (account kept in H.O.
Books 900
Record the above in the books of both the Head Office and Branch. Also
state how much profit has the branch made.
Solution:
Books of Head office
Date Particulars L.F. Dr. Cr.
1994

Goods in transit 4,400

Account Dr.

4,400
To Rohtak Branch Account

(Being goods sent to Rohtak Branch not received

3,200
there)
Rohtak Branch
Account Dr. 3,200

To Salaries Account (or P&L A/c)

900
(being H.O. expenses to be received from the
branch) 900
Rothak Branch
Account Dr.

To Branch Assets Account

3,600
Depreciation on branch assets (account kept in

3,600
H.O. Books charged to Branch A/c)
Cash in Transit
Account Dr.
3,200
To Head Office Account
 3,200
(Cash sent to HO not yet received there)
Head Office Expenses
Account Dr.
900

To Head Office Account 900

(Expenses Charged by Head Office)

Depreciation
Account Dr.

To Head Office Account

(Depreciation in respect of branch assets

account in Head Office)
After making the above entries the profit at the branch will be reduced to
Rs. 7,300 i.e. Rs, 11,400 being H.O. expenses depreciation.
Illustration 6
A&Co. Ltd, having their H.O. at Delhi with branches at Lucknow and
Allahabad close their annual account on 31st December, when the following
transactions have taken place:
(a) Remittances of Rs. 4,500 mady by Lucknow brnch to its H.O. on 30th
December, received by the
H.O. on 5th January.
(b) Goods valuing Rs. 2,200 despatched by the Allahabad on 27th
December, under instructions from the H.O. and received by the Lucknow
on 30th December.
(c) Depreciation amounting to Rs, 1,100 on Lucknow branch fixed assets
when accounts of such assets are maintained at the H.O.
(d) Goods worth Rs. 9,000 despatched by the H.O. to Allahabad branch on
30th December received by that branch on 7th January.
Show these entries in the books of the (i) H.O. and (ii) Lucknow branch as at
the close of the year.
Solution:
H.O. JOURNAL
(a) No Entry Rs. Rs.

Lucknow Branch
*(b) A/c Dr. 2,200

To Allahabad Branch A/c

2,200

(Goods sent by Allahabad Branch to Lucknow

Branch as per our instalment)
Lucknow Branch
A/c Dr.
(c) 1,100

To Lucknow Assets A/c

1,100

(Dep, on assets as Lucknow Branch)

Goods-in-Transit
(d) A/c) Dr. 9,000

To Allahabad Branch A/c 9,000

(Goods sent by us not yet received by Allahabad

Branch)

* Strictly entry (b) is not required as the question requires entries only at
the close of the year.
Lucknow Branch Journal
 Rs. Rs.
(a)
Cash-in-transit 4,500
A/c Dr.

4,500
To Head Office A/c

2,200
(Entry for remittances still on transit)

(b)
Goods from H.O.
A/c Dr.

2,200
To Head Office A/c

(Goods received from Allahabad oon Head Office

instructions)
(c)
Depreciation 1,100
A/c Dr. To
Head Office
1,100
(depreciation on assets)

Incorporation of branch trial balance in Head Office books

On the receipt of trial balance from the branhc, the H.O. will take steps to
incorporate bracu figures with its own figures with a view to present a
common trading and profit and loss account and Blance sheets. This process
is known as Incorporation’. Before starting to pass entries, the Trading and
Profit & Loss Account of the branch will have to be prepared and after that
the combined blance sheet of the branch and the Head Office. There are
two methods for doing this:
Under first method, the Trading and Profit and Loss Account of the Branch
is prepared in the regular way in the books of the Head Office. The entries
to be passed are as follows:
1. Branch Trading Account Dr.
To Branch Account
(With the items of opening stock, purchases and other items appearing on
the debit side of Trading Account of the branch but excluding gross pofit).
2. Branch Account Dr.
To Branch Trading Account
(With Sales; Closing Stock and other items appearing on credit side of
Trading Account of the branch but excluding loss).
2. Branch Trading Account Dr.
To Branch Profit and Loss Account
(For Gross profit revealed by Trading Account).
If there is a gross loss, the entry will
be reversed:
Note:
4. Branch Profit & Loss Account Dr.
To Branch Account
(Fro amounts appearing on the debit side a Profit & Loss account of the
branch but excluding net Profit and Gross Loss)
5. Branch Account Dr.
To Branch Profit & Loss Account
(With items appearing on the credit side of P&L A.c of
Branch but excluding gross profit and net loss).
6. Branch Profit and Loss Account Dr.
To Profit & Loss Account
(With net profit revealed by Profit & Loss Account of the Branch). The above
entry will be reversed if there is a net loss:
It should be noed that Branch Trading Account and Branch Profit and Loss
Account will setoff.
It is desired to close the books of the branch completely and to record
branch asets and liabilities in the Head office books for the purpose of
reparing common Blance Sheet, the folowing two further entries should be
poassed:
Branch Assets (individually) To Branch Account (Incorporation of branch
assets as shown in the balance sheet at the branch) Branch
Account Dr.
To Branch Liabilities (individually)
(Incorporation of branch liabilities so outsiders shown in the Blance Sheet of
the branch).
Illustration 6
You ar required to prepare the Trading and Profit & Loss Account and
consolidated balance sheet of Eve Ltd., in Calcutta and its branch at Delhi.
Give Journal entries incorporation of Delhi branch accounts in the Head
Office and show the branch account in Head Office book after incorporating
these in the assets and liabilities.
The trial balance as on 31st December, 1993 are as under.

H.O. Dr. Branch H.O. Branch

Dr. Cr. Cr.
Manufacturing expenses 30,00010,000 – –
Salaries 30,00010,000 – –
Wages 1,00,000 40,000 – –
Cash in Hand 10,0002,000 – –
Purchases 1,50,000 8,000 – –

Capital
– –2,00,000 –
Goods received from H.O. –15,000 – –
Rent 8,000 4,000 – –
General expenses 20,000 5,000 – –
Salaes – –4,50,000 1,50,000
Gooods sent to Branch – –15,000 –
Purchase returns – –5,000 1,000
Opening Stock 50,000 30,000 – –
Discount earned – –2,000 1,000
Machinery H.O. 1,50,000 – – –
Machinery, branch 50,000 – –
Furniture H.O. 7,000 – – –
Furniture,Branch 3,000 – – –
Debtores 40,000 15,000 – –
Creditors – –30,000 5,000
H.O. Accounts – – –45,000
Branch Accounts 54,000 – – –
Total 7,02,000 2,11,000 7,02,000 1,11,000

Closing stock H.O. was Rs. 40,000 and at branch Rs. 30,000. Depreciation is
to be chargeal or machinery
@ 20% and fueniture @ 15%. Rent outstanding is Rs. 500 (for branch).
Solution:
H.O..Books
Journal
1993
Rs. Rs.
Delhi Branch 10,450 10,000
Account
Dr.

To Branch machinery account

450

To Branch furniture account

 (Being the depereciation on branch fixed assets 1,75,000
charged to branch)
Branch trading
1,75,000
account
Dr.

To Delhi Branch account

(Cueing the total of the following items in

branch deebited to branch trading account)

Dec. 31
1,81,000
1,81,000
6,000
6,000
29,950
29,950
1,000
1,000
22,950
22,950
15,000
Stock 30,000

Purchases 80,000

Wages 40,000
Manufacturing Expenses 10,000

Goods reed from H.O. 15,000

Total 1,75,000
Delhi Branch
Accounts
Dr.

To Delhi trading acount

(Being the total of the following items at

branches credited to branch trading account)

Sales 1,50,000

Purcchases return 1,000

Branch stock 30,000

Rs. 1,81,000
Delhi Trading
account
Dr.

To Delhi Profit & Loss account

(Being the transfer of gross profit)

Delhi profit & Loss
account Dr.

To Delhi branch account

(The total of the following expenses at branch

debited to branch profit and loss account)

Rent(including o/s) 4,500

Salaries 10,000

General expenses 5,000

Depreciation 10,450

Rs. 29,950
Delhi Branch
account
Dr.

To Delhi profit & Loss account

(Being the discount earned at Delhi credited to

branch profit & loss a/c)
General profit & loss
account Dr.

To Branch profit & loss account

(being the loss at Delhi transferred to Profit
and loss account of the H.O.)
Brach debtors
account
Dr. Branch cash
account
Dr.

2,000
Branch stock 30,000
account Dr.

47,000
To Delhi Branch account

(being the transfer of various assetsa to branch to

5,500
H.O. books)
Delhi Branch
account Dr. 5,000

To Branch creditors account 500

To Branch expenseso/s account

(Being the transfer of liabilitites at branch to H.O.

books)

Delhi Branch Account

Date Particulars Amount Date Particulars Amount
1993 Rs. 1978 Rs.
Dec.31To Balance b/d 54,000 Dec.31By Delhi Trading A/c
 To Branch assets -opening stock purchases
depre ciation etc.
10,450 1,75,000

To Delhi trading 1,81,000 By Delhi P&L A/c

account sales and expenses,
stock 29,950

Sundry assets
To Delhi Profit & 47,000
loss account - 1,000
discount

5,500
To S. Liabilities
2,51,950 2,51,950
Trading and profit and Loss Account of Eve Ltd.
Fr the year ended 31st December, 1993
H.O. Rs. Delhi H.O. Rs. Delhi
Rs. Rs.
To Opening Stock 50,000 30,000 BY Goods sent to 15,000 —
branch
To Purchases less 1,45,000 79,000 4,50,000 1,
returns By Sales 50,000
— 15,000 40,000
To Goods receivedfrom By Closing Stock 30,000
1,00,000 40,000
H.O. To Wages
30,000 10,000
To Manufacturing ex.
1,80,000 6,000
To Gross profit carried
down 5,05,0001,80,000 5,05,000 1,80,000
To Rent (paid and o/c) 8,000
4,500 By Cross Profit 1,80,000 6,000
To Salaries b/d
30,000 10,000 2,000 1,000
To General expenses To 20,000 5,000 By Discount 22,950
Depreciation:
By Net Loss
Machinery 20%
FURNITURE 15% TO NET
PROFIT 30,000 10,000
1,050 450
92,950 —
1,82,00029,950 1,82,000 29,950
(b) lighting and heating expenses are distributed on the basis off units of
power consumed by each department, and so on,
(iii) Common expenses whose benefit are not capable of accurate
measurement are dealt with as follows:
(a) Selling expenses, e.g, discounts, bad debts, selling Commission, etc.,
are apprtioned on the basis of sales or Cost of production plus
Administrative expenses.
Balance Sheet of Eve Ltd. At a 31st December, 1993
Liabilities Amount
Assets Amount
Rs. Rs. Sbare
Capital 2,00,000 Fixed
Assets
H.O.profit 92,950 Machinery
H.O. 1,50,000
Less profit & Loss at branch (Loss) 22,950 70,000
Branch 50,000
Sundry
Creditors
2,00,000
H.O. 30,000 35,000 Less
Dep. 40,000 1,60,000
Branch 5,000 Furniture
Rent outstanding at branch 500
H.O. 7,000
Branch 3,000
10,000
Less Dep. 1,500 8,500
Current Assets
Stock Head Office 40,000
Branch 30,000 70,000
DebtorsH.O. 40,000
Branch 15,000 55,000
Cash in hand
H.O. 10,000
Branch 2,000 12,000
3,05,500 3,05,500
Alternatively, instead of passing entries regarding Trading and profit and
Loss Account, only one entry of the profit made or loss suffered at the
branch may be passed:
Brach Account Dr.
To H.o. Profit & Loss Account. For loss the above entry is reversed.