Branch Account II

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In today’s class, we will be talking more about the branch account. Enjoy the class!

Content

Branch Adjustment Method
Accounting Entries
Formats and Illustration
Where branches keep separate Accounts

Branch adjustment method of branch accounting

Unlike the memorandum or double column method, under this method, the profit loading will be taken to a separate A/C called “Branch adjustment A/C”. Under this method, the following are the main A/C that will be prepared:-

Branch stock A/C – at invoice price
Branch stock adjustment A/C showing profit loading
Goods sent to branch A/C – based on the cost price
Debtors A/C (where goods are sold or credit)
Branch P & L A/C

Accounting entries

When goods are sent to branch Dr. Branch stock A/C at invoice price Cr. Goods sent to branch A/C (at cost)
When there are sales – cash or credit Dr. Cash A/C with cash sales Dr. Debtors A/C with credit sales Cr branch stock A/C with cash or credit sales.
Stock at the start.

Dr. branch stock A/C – (with invoice price) Cr. Branch stock adjust A/C (profit loading)

Stock at close

Dr. Branch stock adjust A/C (profit loading)

Cr. Branch stock A/C with invoice price

Returns to head office.

Cr. Branch stock A/C at invoice price

Dr. Goods sent to branch A/C at cost price

Dr. Branch stock adjustment A/C with profit loading

Transfer to other branches

Cr. Branch stock A/C at invoice price

Dr. Goods sent to branch A/C at cost price

Dr. branch stock adjustment A/C with profit loading

Allowances of selling price or reduction in selling price

Dr. branch stock adjustment A/C (total allowance)

Cr. Branch stock A/C (total allowance)

Goods in transit

Dr. branch stock adjustment A/C (with profit loading)

Cr. Branch stock A/C (with invoice price)

Goods lost in transit

Dr. Branch stock adjustment A/C (with profit loading)

Dr. Goods lost in transit A/C (at cost price and write it off to P & L A/C)

Cr. Branch stock A/C (at invoice price)

Goods stolen or deficiencies

Cr. Branch stock A/C (invoice price)

Dr. Branch stock adjustment A/C (profit loading)

Dr. Goods stolen A/C (with cost price)

Cash Stolen

Cr. Branch stock A/C (Total amount)

Dr. Defalcation A/C (total amount) to be written off to P & L A/C

Goods returned by customers to head office

Cr. Debtors A/C (invoice price)

Dr. goods sent to branch A/C (cost price)

Dr. Branch stock adjustment A/C (profit loading)

Balance of adjustment A/C will be transferred to branch profit and loss A/C
The goods sent branch A/C will be closed by transferring the balance to H.O. trading A/C. Formats

Branch Stock Account (invoice price)

N N

Stock at start x goods transferred to another branch x

Goods sent to branch x cash sales x

Credit sales x

Expenses paid out of takings x

Reducting in selling price x

Goods in transit x

Returns to H.O. x

Cash stolen (pilterage) x

Normal loss x

Cash in hand x

Bal c/d stock at close x

xx xx

Goods sent to Branch A/C (cost price)

Return to H.O x Branch stock A/C x

Transfer to other branch x

Bal C/D transp. To H.O

Trading A/C x

x x

Branch stock adj. or branch mark-up Account profit loading

N N

Profit on return to H. O x Profit on opening stock x

Profit on stock at close x profit on goods sent to branch x

Profit on goods returned

By customers to H.O x

Profit on goods in transit x

Normal loss (selling price)x

Profit on goods stolen x

Profit on return to other

Branch x

Reduction in selling pricex

GP to branch & P&L A/C

c/d x

xx xx

Branch P & L A/C

N N

Cost of goods stolen x Branch stock Adj A/C b/d x

Sundry expenses x

Cost of goods lost in transit x

Cost stolen x

Net profit c/d x

xx xx

Evaluation questions

What are the entries involved in selling goods on credit by a branch?
What is the purpose of preparing branch stock accounts?

Illustration

Suzuki Ltd has a head office in Lagos and a branch in Ibadan. All goods are purchased by the head office and sent to Ibadan at cost plus mark-up of 1/3 of the selling price. During the year to 31/12/05 the following transaction took place at Ibadan.

Goods received from Lagos 360,000

Goods returned to Lagos 3360

Bad debt 1192

Cash received from debtors 137248

Cash discount given 3616

Cash sales 201600

Credit sales 144,000

The following additional information is relevant

1/1/05 31/12/05

N N

Stock in hand at selling price 32160 42000

Debtors 13216 15160

You are required to prepare

Branch stock A/C
Goods sent to Branch A/C
Branch stock adjustment A/C
Branch debtors A/C

Solution

Suzuki Ltd

Branch stock A/C (invoice price)

N N

balance b/f 32160 cash sales 201600

Goods sent to branch debtors

At cost (2/3 x 360,000) 240,000 -credit sales 144,000

Branch stock adj. goods return

Profit loading (1/3 x 360,000) 120,000 to H.O.

Cost – (2/3 x 3360) 2,240

Branch stock

Adjust-profit

Loading (1/3×3360) 1,120

Branch stock

(The difference) 1,200

bal (c/d stock

at close 4,200

39216 39216

Goods sent to branch A/C (cost price)

N N

Branch stock

Goods returned to H.O A/C (2/3×360,000) 240,000

Cost (2/3×3360) 2240

Transferred to

H.O. trading A/C

(Balancing figure) 237,760

240,000 240,000

Branch stock adjustment A/C (profit loading)

N N

Branch stock A/C bal b/f (1/3×32,160 10,720

Less in stock 1200 branch stock A/C 120,000

Returns to H.O (profit on G.S.B

(profit on it 1/3×3360 1120 (1/3×360,000)

Profit on closing

Stock (1/3×42000) c/d 14,000

Branch P&L A/C GP c/d 114,400

130720 130720

Bal b/d 14000

Branch debtors A/C

N N

Bal b/f 13216 cash received from debtors 137248

Credit sales 144,000 Discount allowed 3616

Bad debt 1192

Bal c/d 15,160

157216 157216

Bal b/d 15160

Evaluation questions

Explain the following pricing methods used in preparing branch accounts

(a) cost price (b) cost plus a percentage (c) selling price

List any five items that may feature in the Branch stock Adjustment Account.

General evaluation

List five source documents used in preparing the Cash Book
State five factors to be considered in determining the depreciation charge for a fixed asset
State five differences between capital expenditure and revenue expenditure
State three features of each of the following (a) cash book (b) trading account (c) profit and loss account
Differentiate between prime costs and overhead costs

Reading assignment

Essential Financial Accounting O. A. Longe, Pages 379-383

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Branch Account II