C hapter 17: Branch accounts

Contents of chapter
This chapter covers the accounting needed for firms with branches. Sometimes, all the accounts are kept at the
head office, and sometimes each branch keeps a full set of accounts.

Notes for teachers

Firms need to keep a check on the activities of each of their branches.
1

The double column system is used because goods or cash may be stolen more easily when the
2
transactions are at a distance from the head office staff. The accounts are an attempt to keep a check on
these two items in particular.

Many firms keep a check on transactions by recording goods at their selling prices.
3

Remember that all items in transit are assets of the firm.

4
Thus: Goods in transit,
Cash in transit, and
Returns in transit
will always be debit balances (i.e. assets).

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Answers to MCQs and exercises
17.1 A 17.2 A 17.3 B

17.4
(a) In the books of the head office
Branch Current
$ $
Balance b/f 20,160 Bank 30,000
Goods sent to branch 23,160 Goods sent to branch: Returns 400
Bank: Expenses paid 6,000 Balance c/f 22,420
Profit and loss: Net profit 3,500
52,820 52,820

(b) Proof: Branch assets xxx

Less Branch liabilities xxx
Balance of branch current account xxx
It indicates the amount of money invested in the branch by the head office.

17.5X (Dates omitted)

(a) In the books of Head Office

Branch Current
$ $
Balance b/f 89,370 Bank 140,590
Goods sent to branch 116,210 Goods sent to branch: Return 8,160
Bank: Expenses 7,110 Balance c/f 87,600
Net profit 23,660
236,350 236,350

(b) As we know: Branch assets – Branch liabilities = Balance of branch current account, representing the amount of
money invested in the branch.

In the above, we know:

$
Branch assets (A) ?
Less Branch liabilities 11,300
Balance of branch current account 87,600

Therefore, (A) is the missing figure. By arithmetical deduction, it must be $98,900.

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 17.6
(a) Debtors
20X6 $ 20X6 $
Jan 1 Balance b/f 4,550 Dec 31 Bank 72,100
Dec 31 Sales (balancing figure) 73,325 " 31 Balance c/f 5,775
77,875 77,875

(b) Bank
20X6 $ 20X6 $
Dec 31 Debtors 72,100 Dec 31 Head office current 61,250
" 31 Creditors 3,675
" 31 Expenses 1,750
" 31 Balance c/f 5,425
72,100 72,100

(c) Branch Stock

20X6 $ 20X6 $
Jan 1 Stock b/f 13,825 Dec 31 Trading account — Cost of
Dec 31 Head office current 49,875 goods sold (balancing figure) 51,800
" 31 Creditors 3,850 " 31 Stock c/f 15,750
67,550 67,550

(d) Head Office Current

20X6 $ 20X6 $
Dec 31 Bank 61,250 Jan 1 Balance b/f 17,850
" 31 Balance c/f 26,250 Dec 31 Branch stock 49,875
" 31 Wages 6,300
" 31 Profit and loss 13,475
87,500 87,500

Note: Sales $73,325 – Cost of goods sold $51,800 – Wages $6,300 – Other expenses $1,750 = Net profit $13,475

(e) Creditors
20X6 $ 20X6 $
Dec 31 Bank 3,675 Jan 1 Balance b/f 525
" 31 Balance c/f 700 Dec 31 Branch stock:
Purchases (balancing figure) 3,850
4,375 4,375

17.7
(a) Branch Stock (Mongkok)
20X5 $ 20X6 $
Feb 1 Balance b/f 28,750 Jan 31 Sales 340,400
20X6 Reduction in selling price 2,400
Jan 31 Goods sent to branch 364,800 Loss 1,810
Balance c/f 48,940
393,550 393,550

154
 Branch Stock (Causeway Bay)
20X5 $ 20X6 $
Feb 1 Balance b/f 35,880 Jan 31 Sales 455,450
20X6 Loss 4,980
Jan 31 Goods sent to branch 481,200 Balance c/f 56,650
517,080 517,080

(b) Trading Account for the year ended 31 January 20X6

$ $ $
Opening stock 118,235 Sales ($340,400 + $455,450) 795,850
($69,000 + $21,505 + $27,730)
Add Purchases 770,000
Less Returns outwards 8,600 761,400
879,635
Less Closing stock
($92,000 + $41,840 + $48,690) 182,530
Cost of goods sold 697,105
Gross profit c/d 98,745
795,850 795,850
Gross profit b/d 98,745

17.8
(a) Branch Stock
20X6 $ 20X7 $
Nov 1 Balance b/f 3,200 Oct 31 Goods sent to branch: Returns 4,000
20X7 Bank: Sales 170,000
Oct 31 Goods sent to branch 140,000 Branch debtors: Sales 1,300
Branch profit and loss: Gross profit 50,100 Stock c/f 18,000
193,330 193,300

(b) Goods sent to Branch

20X7 $ 20X7 $
Oct 31 Branch stock: 4,000 Oct 31 Branch stock 140,000
Returns to head office
Balance c/f 136,000
140,000 140,000

(c) Branch Profit and Loss

20X7 $ 20X7 $
Oct 31 Bad debts 50 Oct 31 Branch stock: Gross profit 50,100
Branch expenses 23,100
Head office Profit and loss: 26,950
Net profit
50,100 50,100

(d) Branch Debtors

20X6 $ 20X7 $
Nov 1 Balance b/f 60 Oct 31 Bad debts 50
20X7 " 31 Bank 900
Oct 31 Branch stock: Sales 1,300 " 31 Balance c/f 410
1,360 1,360

155
 (e) Head Office Trading Account for the year ended 31 October 20X7
$ $ $
Sales: Cash 937,200
Credit 6,400 943,600
Less Returns inwards 1,400
942,200
Less Cost of goods sold
Opening stock 65,000
Add Purchases 780,550
Less Returns outwards 4,000
776,550
Less Goods sent to branch 136,000 640,550
705,550
Less Closing stock 46,000 659,550
Gross profit 282,650
Add Net profit from branch 26,950
309,600

17.9
(a) Branch Stock
20X4 $ 20X4 $
Jan 1 Balance b/f 10,000 Dec 31 Bank: Cash sales 57,500
Dec 31 Goods sent to branch 150,000 " 31 Branch debtors: Credit sales 87,500
" 31 Balance c/f 15,000
160,000 160,000

(b) Branch Adjustment

2004 $ 20X4 $
Dec 31 Branch profit & loss: Jan 1 Balance b/f
25
Gross profit (balancing figure) 29,000 ($10,000 × 125 ) 2,000
" 31 Balance c/d Dec 31 Balance stock account
25
($15,000 × ) 3,000 ($150,000 × 25 ) 30,000
125 125
32,000 32,000

(c) Branch Debtors

20X4 $ 20X4 $
Jan 1 Balance b/f 8,750 Dec 31 Bank 85,000
Dec 31 Branch stock: Credit sales 87,500 " 31 Balance c/f 11,250
96,250 96,250

(d) Branch Petty Cash

20X4 $ 20X4 $
Jan 1 Balance b/f 50 Dec 31 Branch profit and loss:
Dec 31 Bank 750 Expenses (balancing figure) 725
" 31 Balance c/f 75
800 800

(e) Branch Profit and Loss

20X4 $ 20X4 $
Dec 31 Branch expenses 14,500 Dec 31 Branch adjustment account:
" 31 Petty cash expenses 725 Gross profit 29,000
" 31 Net profit 13,775
29,000 29,000

156
17.10X (Dates omitted)

(a) Branch Debtors

$ $
Balance b/f 12,250 Bank 119,000
Branch stock: Credit sales 122,500 Balance c/f 15,750
134,750 134,750

(b) Branch Petty Cash

$ $
Balance b/f 70 Branch profit and loss a/c: Expenses 1,015
Bank 1,050 Balance c/f 105
1,120 1,120

(c) Branch Stock

$ $
Balance b/f 14,000 Branch debtors: Credit sales 122,500
Goods sent to branch 210,000 Bank: Cash sales 80,500
Balance c/f 21,000
224,000 224,000

(d) Branch Adjustment (Profit Loading)

$ $
25
Branch profit and loss: Gross profit (balancing figure) Balance b/f ($14,000 × 125 ) 2,800
25
(($80,500 + $122,500) × ) 40,600 Branch stock ($210,000 × 25 ) 42,000
125 125
Balance c/f ($21,000 × 25 ) 4,200
125
44,800 44,800

(e) Branch Profit and Loss

$ $
Branch expenses 20,300 Branch adjustment: Gross profit 40,600
Petty cash expenses 1,015
Net profit (balancing figure) 19,285
40,600 40,600

17.11X
(a) Branch Stock
20X6 $ 20X6 $
Jan 1 Balance b/f 13,720 Dec 31 Branch debtors: Sales 144,200
Dec 31 Goods sent to branch 140,000 " 31 Goods sent to branch: Returns 2,800
" 31 Branch debtors: Returns inwards 1,442 " 31 Branch adjustment: Stock deficiency 462
" 31 Balance c/f 7,700
155,162 155,162

(b) Goods Sent to Branch

20X6 $ 20X6 $
100 100
Dec 31 Branch stock: Returns ($2,800 × ) 2,240 Dec 31 Branch stock ($140,000 × ) 112,000
125 125
" 31 Trading account 109,760
112,000 112,000

157
 (c) Branch Adjustment
20X6 $ 20X6 $
25 25
Dec 31 Branch stock ($2,800 × ) 560 Jan 1 Balance b/f ($13,720 × ) 2,744
125 125
" 31 Branch stock: Deficiency 462 Dec 31 Branch stock ($140,000 × 25 ) 28,000
125
" 31 Branch profit and loss: Gross profit 28,182
" 31 Balance c/f ($7,700 × 25 ) 1,540
125
30,744 30,744

(d) Branch Debtors

20X6 $ 20X6 $
Jan 1 Balance b/f 11,760 Dec 31 Branch stock: Returns 1,442
Dec 31 Branch stock: Sales 144,200 " 31 Bank 142,100
" 31 Discounts allowed 3,822
" 31 Balance c/f 8,596
155,960 155,960

17.12
(a) Branch Stock
20X4 $ 20X4 $
Jan 1 Balance b/f 110,000 Dec 31 Head office Bank: Cash Sales 610,000
Dec 31 Goods sent to branch 1,600,000 Branch debtors: Credit sales 834,000
Goods sent to branch:
Returns to Head office 64,000
Balance c/f 202,000
1,710,000 1,710,000

(b) Branch Adjustment

20X4 $ 20X4 $
Dec 31 Branch stock: 32,000 Jan 1 Balance b/f 55,000
Returns to Head office Dec 31 Branch stock:
Branch profit and loss: Goods sent to branch 800,000
Gross profit 722,000
Balance c/f 101,000
855,000 855,000

(c) Branch Debtors

20X4 $ 20X4 $
Jan 1 Balance b/f 88,000 Dec 31 Head office Bank 796,000
Dec 31 Branch stock 834,000 Balance c/f 126,000
922,000 922,000

(d) Branch Cash

20X4 $ 20X4 $
Jan 1 Balance b/f 3,000 Dec 31 Branch profit and loss: Expenses
Dec 31 Head office Bank ($2,500 × 12) 30,000 (balancing figure) 29,000
Balance c/f 4,000
33,000 33,000

(e) Branch Profit and Loss

$ $
Branch expenses 196,000 Gross profit 722,000
Branch cash: Petty expenses 29,000
Head office profit and loss — Branch net profit 497,000
722,000 722,000

158
17.13
(a) Sai Ltd
Trading and Profit and Loss Account for the year ended 30 September 20X2
Head Office Branch
$ $ $ $
Sales 213,720 152,100
Less Cost of goods sold:
Stock at 1.10.20X1 26,400
Add Purchases 252 480
278,880
Less Goods to branch (W1) 105,600 105 600
173,280
Less Stock at 30.9.20X2 (W2) 31,800 141,480 12,600 93,000
Gross profit 72,240 59,100
Less General expenses (W3) 45,420 30,960
Net profit 26,820 28,140

(b) Branch Current

$ $
Balance (as per trial balance) 51,750 Goods in transit c/f 4,500
Net profit 28,140 Cash in transit c/f 5,160
Balance c/f 70,230
79,890 79,890

* When the mark-up is 25%, the margin (or profit loading) is 20%.

(W1) $
Goods to branch as per trial balance 136,500
Less Goods in transit 4,500
132,000
Less Profit loading* (20%) 26,400
105,600

(W2) Stock at head office 28,200

Add Goods in transit ($4,500 – profit 20%) 3,600
31,800

(W3) General expenses:

Head office = $46,530 – $1,110 = $45,420
Branch = $29,850 + $1,110 = $30,960

17.14X
(a) LR
Trading and Profit and Loss Account for the year ended 31 December 20X2
Head Office Branch
$ $ $ $
Sales 83,550 51,700
Less Cost of goods sold:
Purchases 123,380 —
Less Goods sent to branch ($45,000 – $736) 44,264 —
79,116
Goods from head office — 44,264
Less Closing stock 12,276 (W1) 66,840 2,664 (W2) 41,600
Gross profit 16,710 10,100
Less General expenses 8,470 6,070
Net profit 8,240 4,030

159
 (b) LR
Balance Sheet as at 31 December 20X2
$ $
Fixed Assets ($33,000 + $6,000) 39,000

Current Assets
Stock ($12,276 + $2,664) 14,940
Debtors ($7,980 + $7,040) 15,020
Cash at bank ($3,740 + $1,520) 5,260
Cash in transit 1,000
36,220
Less Current Liabilities
Creditors ($11,060 + $1,630) 12,690
Net current assets 23,530
62,530
Financed by
Capital Introduced 52,000
Add Net profit ($8,240 + $4,030) 12,270
64,270
Less Drawings 1,740
62,530

Workings:

W1: Stock — Head Office

$ $
Purchases 123,380
100
Less Cost of sales ($83,550 × ) 66,840
125
100
Cost of goods to branch ($56,250 × ) 45,000 111,840
125
11,540
100
Add Cost of goods in transit ($920 × ) 736
125
12,276

W2: Stock — Branch

$ $
100
Cost of goods sent ($56,250 × 125 ) 45,000
Less Cost of sales ($51,700 × 100 ) 41,360
125
100
Cost of goods in transit ($920 × ) 736
125
Stock shortage at cost ($300 × 100 ) 240 42,336
125
2,664

160