WELCOME : WELCOME
Slide 2 : BRANCH ACCOUNTS
ILO:
At the end of this session the students should be able to:
Explain the meaning of branches, types, different account systems of branches.
Prepare Income statements based on centralized system with different adjustments
Prepare Income statements based on decentralized system with different adjustments
Slide 3 : Introduction:
In order to market its product over a large geographical area and to have an effective and efficient retailing, a business is generally split in Branches. Various division of the business are located in different places, either in same town or in different towns, are knows as Branches.
Slide 4 : Types of Branches
Home Branches
Foreign Branches
System of Accounting for Branches
Centralized Accounting System
Decentralized Accounting System
Slide 5 : Centralized Accounting system
The term Centralized Accounting means branch which does not maintain its own set of books. All records have to be maintained by the Head Office
Under Centralized Accounting System, there are three pricing methods (invoice price) to transfer the goods to branches.
At cost
At fixed selling price
At mark up price with a minimum profit margin method.
Slide 6 : Pricing Goods at Cost
All the goods are purchased by the Head Office send to the Branch at its purchase price, viz. at cost. The Branch Manager decides the selling price of the goods under this pricing system. In case of this system, the Head Office maintains a number of accounts for keeping a record of Branch transaction.
Two important Ledger Accounts are;
Branch stock Account
The purpose of maintaining of this account is to calculate the Gross Profit of Branch.
2.Goods sent to Branch Account
The purpose of this account is to calculate the total cost of Goods sent to Branch.
Journal Entries : Journal Entries For Goods sent to the Branch (at invoice price)
Branch Stock Account Dr
Goods sent to the Brach account Cr
For Goods returned by the Branch to the Head Office (at invoice price)
Goods sent to the Brach account Dr
Branch Stock Account Cr
For Credit Sales at the Branch
Branch Debtors Account Dr
Branch Stock Account Cr
Slide 8 : For Cash Sales at the Branch
Cash Account Dr
Branch Stock Account Cr
For Goods returned by Branch Debtors to the Branch
Branch Stock Account Dr
Branch Debtors Account Cr
For Goods returned by Branch debtors directly to the Head Office
Goods Sent to the Branch Account Dr
Branch debtors Account Cr
Slide 9 : For Bad Debts, Discount etc:
Branch Bad Debts/ Discount given A/C Dr
Branch Debtors Account Cr
For expenses at Branch
Branch Expenses Account Dr
Branch Cash Book Cr
Expenses incurred by the Head Office on behalf of Branch
Branch Expense Account Dr
H/O Cash Book Cr
Slide 10 : For remittances received from the Branch
H/O Bank Account Dr
Branch Cash Book Cr
For shortage or loss of Stock at Branch
Loss of Goods Account Dr
Branch Stock Account Cr
For loss of Cash at Branch
Loss of Cash Account Dr
Branch Cash Book Cr
Slide 11 : The Closing Stock of Branch should be shown as carried down (C/D) balance of Branch Stock Account.
The difference of Branch Stock Account is considered as Gross Profit or Loss of the Branch and should be transferred to Profit and Loss Account.
Goods sent to the Branch Account represent the total cost of goods sent to the branch by head office during certain period. This should be deducted from the purchase in Trading Account.
Slide 12 : Exercise I
From the following transactions relating to Kandy Branch of ABC Ltd for the year ended 31 December 2009, prepare the necessary ledger accounts for Branch in the book of Head Office.
Branch Rs
Stock (01/01/09)…………………………………………..10,000
Debtors (01/01/09)……………………………………….. 4,000
Cash (01/01/09)………………………………………………1,000
Transactions- during the year
Goods received from the Head Office…………..65,000
Goods returned to the Head Office…………………2,000
Cash sales …………………………………………………….25,500
Credit sales……………………………………………………47,000
Slide 13 : Cash received from debtors…………………….40,500
Discount given…………………………………………..1,000
Bad debts…………………………………………………….650
Goods returned by the debtors (cost 600)……750
Remittances made to the Head Office……..30,000
Salaries……………………………………………………..1,500
Rent…………………………………………………………..1,000
Insurance……………………………………………………..200
Expenses made for the Head Office………………550
Other expenses ………………………………………..4,650
Loss of cash………………………………………………….100
Loss of Goods (at cost)………………………………….400
Stock (at cost 31/12/09)…………………………….5,000
Slide 14 : Pricing at Fixed Selling Price
In case of fixed selling price, goods sent to the Branch by Head Office at selling price at which Branch should sell goods.
Two important Ledger Accounts in this method are;
1.Branch Stock Account
The purpose of this Account is to control the Stock at Branch
2.Goods sent to the Branch Account
The purpose of this Account is to calculate the total sales of Branch
Journal Entries : Journal Entries For Goods sent to the Branch by the Head Office
Branch Stock Account Dr
Goods sent to the Branch Account Cr
For Goods returned by Branch
Goods sent to the Branch Account Dr
Branch Stock Account Cr
For Credit sales at the Branch
Branch Debtors Account Dr
Branch Stock Account Cr
Slide 16 : For Cash sales at the Branch
Branch Cash Book Dr
Branch Stock Account Cr
For Goods returned by the Branch Debtors
Branch Stock Account Dr
Branch Debtors Account Cr
For Goods returned by the Branch Debtors directly to the Head Office
Goods sent to the Branch Account Dr
Branch Debtors Account Cr
Slide 17 : For Discount allowed & Bad Debts
Branch Bad Debts/ Discount allowed A/C Dr
Branch Debtors Account Cr
For Branch expenses
Branch Expenses Account Dr
Branch Cash Book Cr
For remittances to the Head Office
Head Office Cash Book Dr
Branch Cash Book Cr
Slide 18 : Cash received from Branch Debtors
Branch Cash Book Dr
Branch Debtors Account Cr
Loss of goods at the Branch
1. Goods sent to the Branch A/C(invoice price)Dr
Branch Stock Account Cr
2. Loss of goods A/C (cost) Dr
Trading Account Cr
Slide 19 : Opening stock at the Branch
This should be shown as a B/F debit balance of the Branch Stock Account (at selling price). Further, opening stock at Branch should be shown as a B/F credit balance of Goods sent to the Branch Account.
Closing stock at the Branch
This should be shown as a C/D credit Balance of the Branch Stock Account and a C/D debit balance of the Goods sent to the Branch account.
Slide 20 : Pricing at Markup Price with a Minimum Profit Margin
In this method goods are sent to the Branch at a markup price which is cost plus minimum profit margin. This is kind of guidance to the Branch manager and though he has right to sell these goods at a higher price than the H/O price but he has not right to sell the goods at a lower price.
Slide 21 : The important Ledger Accounts are;
Branch Stock Account
The purpose of this Account is to control the Stock at Branch
2. Goods sent to the Branch Account
The total cost of goods sent to the Branch by Head Office is calculated through this Account.
3. Branch Stock Adjustment Account
The purpose of this account is to calculate the Gross Profit of the Branch.
Journal Entries : Journal Entries For Goods sent to the Branch by Head Office
Branch Stock A/C (at invoice price) Dr
Goods sent to the Branch A/C (at cost) Cr
Branch Sock Adjustment A/C (profit margin) Cr
For Goods returned by the Branch
Goods sent to the Branch A/C (cost) Dr
Branch Sock Adjustment A/C (profit margin)Dr
Branch Stock Account (at invoice price) Cr
Slide 23 : For Cash sales at the Branch
Branch Cash Book Dr
Branch Stock A/C Cr
For Credit sales at the Branch
Branch Debtors A/C Dr
Branch Stock A/C Cr
For Goods returned by the Branch Debtors directly to the Head Office
Goods sent to the Branch A/C (cost) Dr
Branch Stock Adjustment A/C (profit margin)Dr
Branch Debtors A/C Cr
Slide 24 : For goods returned by the Branch Debtors to the Branch
Branch Stock A/C Dr
Branch Debtors A/C Cr
For Discount allowed to the Debtors
Branch Discount given A/C Dr
Branch Debtors A/C Cr
For Bad Debts At Branch
Branch Bad Debts A/C Dr
Branch Debtors A/C Cr
Slide 25 : For Cash received from Branch Debtors
Branch Cash Book Dr
Branch Debtors A/C Cr
For Cash received from Branch Debtors directly to the Head Office
Head Office Cash Book Dr
Branch Debtors A/C Cr
For Branch Expenses
Branch Expenses A/C Dr
Branch Cash Book Cr
Slide 26 : For remittances to the Head Office
Head Office Cash Book Dr
Branch Cash Book Cr
Loss of goods at the Branch
Branch loss of goods A/C (cost) Dr
Branch Stock Adjustment A/C (profit margin)Dr
Branch Stock A/C Cr
Slide 27 : The Opening Stock of the Branch is shown as B/F Debit balance of Branch Stock and Profit Margin, which is include in O/P Stock, is shown as B/F Credit balance of Branch Stock Adjustment Account.
As well as, the Closing Stock of the Branch is shown as C/D Credit balance of Branch Stock Account and the Profit Margin is shown as C/D Debit balance of Branch Stock Adjustment Account.
Slide 28 : Exercise III
Following transactions are related to Kandy branch of XYZ Ltd at Colombo for the year ended 31st December, 2009.
Stock at Branch on 01.01.2009………………………..60,000
Branch Debtors on 01.01.2009………………………..12,000
Goods received from Head Office (at invoice price)……………………186,000
Goods returned to Head Office…………………………………………………….. 3,000
Credit sales…………………………………………………………………………………..84,000
Cash received from Debtors…………………………………………………………90,000
Discount allowed to Debtors …………………………………………………………2,400
Expenses:
Rent …………………………………………………………………………………………..2,400
Salaries……………………………………………………………………………………..24,000
Other expenses…………………………………………………………………………..1,000
Cash sales………………………………………………………………………………… .104,000
Stock at the Branch on 31.12.2009………………………………………………54,000
You are required to prepare necessary Ledger Account for the Branch form above particulars
Decentralization Accounting System : Decentralization Accounting System
Slide 30 : In case of Decentralization Accounting System, the branch maintains its own set of books. It means all the transactions relating to the branch are recorded in the books of branch itself. Such a branch can either be a Home Branch or Foreign Branch.
Slide 31 : Current Account
Current Account is a Ledger Account which is opened in both the Head Office ledger and the Branch ledger. All inter-transactions are recorded through the Current Account. At the end of the certain period, the balances of both the Head Office current account and the Branch current account should be agreed.
Slide 32 : Goods sent to the Branch XXX Remittances XXX
Goods returned XXX XXX XXX C/D Balance XXX B/F Balance XXX Branch Current Account Head Office Current Account Remittances XXX
Goods returned XXX Goods received XXX C/D Balance XXX B/F Balance XXX XXX XXX Should be agreed
Slide 33 :
Slide 34 : Exercise 1
Followings are the transactions occurred between a Head Office and a Branch.
H/O Branch
Goods invoiced to the Branch by Head Office…………………....388,000
Goods received to the Branch ……………………………………………………350,000
Goods returned by the Branch ……………………………………………………..12,500
Goods received to the Head Office ………………………………....7,500
Remittances to the Head Office…………………………………………………...235,000
Remittances received to the Head Office …………………………220,000
Expenses paid by H/O on behalf of Branch……………………….10,000
Cash received from Branch debtor directly to the H/O…………….25,000
Branch net profit for the year…………………………………………………….... 75,000
You are required to prepare:
1. The Branch Current Account
2. The head office Current Account
In this case, goods are sent to the Branch by Head Office at its cost. Viz. the invoice price doesn’t include any profits. : In this case, goods are sent to the Branch by Head Office at its cost. Viz. the invoice price doesn’t include any profits. Goods invoiced at cost
Slide 36 : Exercise 2
X Ltd has a Branch in Jaffna. Following transactions are relating for the period ended 31st March, 2010. You are required to prepare:
1.Head Office Trading Account
2.Branch Trading Account
3.Trading Account for the Branch, Head Office and Company (column basis)
Goods invoiced at Markup Price with minimum Profit Margin : Goods invoiced at Markup Price with minimum Profit Margin In case of Markup Price, goods are invoiced to the Branch by the Head Office at a price higher than Cost. The invoice price includes Cost plus minimum Profit Margin.
Slide 38 : Exercise 3
PQR Ltd has a branch in Kandy. Following are the few transactions occurred between the Branch and Head Office during the 2010. Good are invoiced from the Head Office at cost plus 30%.
You are required to prepare:
1.Head Office Trading Account
2.Branch Trading Account
3.Trading Account for the Branch, Head Office and Company (column basis)
Slide 39 : Exercise 4
The Nippon Ltd of Colombo has a branch in Kurunegala. The Trail Balance of the company as at 31st March, 2010 as follows
Slide 40 : Additional information:
Goods are invoiced to the Branch from Head Office at cost plus 10%.
Stock at 31.03.2010
-Head Office (at cost) - 6,200,000
-Branch ( at invoice price) – 4,510,000
3. Estimated Income Tax liability for 2009/10 is Rs. 8,350,000
4. The Depreciation policy of the company is to depreciate 10% on cost.
5. The reasons for difference of current account are goods in transit and cash in transit.
You are required to prepare:
Income statement for the year ended 31st March, 2010.
Balance Sheet as at 31st March, 2010.