Chapter – 6 Branch (including Foreign Branch) and Departmental Accounts

Question 1.
Write short note on:
Classification of Branches for Branch accounting purpose. (Dec 2012, 5 marks)
Answer: .
Branches are classified as two-way,
(i) Inland Branch,
(ii) Foreign Branch

(i) Inland Branches:
(a) Dependent Branches: Branches in respect of which the whole of the accounting records are kept at head office.
(b) Independent Branches: As the name indicates such branches maintain independent accounting records.

(ii) Foreign Branches: Branches which are located in a foreign country other then ¡n which the company is incorporated they maintain independent and complete record of business.

Methods of accounting are:

• Final Accounts method
• At wholesale price
• At Cost Price/At Invoice Price
• Debtors method;
• Stock and Debtors method; and
• Cash Basis System.

Descriptive Questions

Question 2.
Define branch as per section 2(14) of the Companies Act, 2013. (Dec 2021, 1 mark)
Answer:
Any establishment described as a branch by the company.

Practical Questions

Question 3.
Priya Sales Corporation of Jaipur has a Branch at Kota to which goods are sent @ 33% above cost. The Branch makes sales both for cash and on credit. Branch expenses are paid directly from Head Office and the Branch has to remit all cash received into the Head Office Bank Account at Kota.
Following further details are given for the year ended 31st March, 2012:

Stock at Branch on 31 .3.2012 at invoice price 3,60,000
You are required to show Branch Stock Account, Branch Adjustment Account, Branch Expenses Account, Branch Debtors Account, Branch Goods sent to Branch Account and Branch Profit & Loss Account in the books of the Head Office. (Dec 2012, 8 marks)
Answer:

Question 4.
A Company with its Head Office at Kolkata has a Branch at Chennai. The Branch receives all goods from Head Office who remits cash for all expenses. Total Sales by Branch for year ended 31.03.2012 amounted to 6,50,000 out of which 75% on Credit. Other details for Chennai Branch were as under:

Petty Cash sent by Head Office ₹ 3,000 but ₹ 2,500 is spent for Petty Expenses. The Expenses of 45,000 are actually spent by Branch. All sales are made by the Branch at Cost plus 25%. You are required to prepare the Chennai Branch A/c in the Books of Head Office for the year ended 31.03.2012. (June 2013, 5 marks)
Answer:

Working Notes:
1. Petty Cash Account

2. Memorandum Debtors Account

3. Calculation of Cost of Goods Sent:
(a) Cost of Goods Sold 6,50,000 x 100/1 25 = 5,20,000
(b) Cost of Goods Sold = Opening Stock + Cost of Goods Sent – Closing Stock
5,20,000 = 4,000 + Cost of Goods sent – 30,000
Hence, Cost of Goods sent = 5,46,000

Question 5.
Prepare a Branch Account in the books of Head Office from the following particulars for the year ended 31 March 2013, assuming that H.O. sold goods at cost plus 25%.

Both opening and closing stock at invoice price. (Dec 2013, 6 marks)
Answer:

Question 6.
Prepare Branch account in the books of the Head Office and also debtors account from the following information given below: for the year 2013 The Unique Shoe Stores has an old branch at Kanpur. Goods are invoiced at the branch at 25% profit on cost price. The branch has been instructed to send all cash daily to the Head Office. All expenses are paid by the Head Office except petty expenses which are met by the Branch Manager.

Petty expenses paid by Branch Manager during year 280
Stock on 31.12.2013 14,000
Provide depreciation on furniture at 10% per year (June 2014, 4+2=6 marks)
Answer:

Question 7.
Answer the question:
TUSHAR Ltd. with its Head Office ¡n Delhi invoices goods to its Branches at Mumbai and Kolkata at 20% less than the catalogue price which is cost plus 50% with instructions that cash sales are to be made at invoice price and credit sales at catalogue price less discount at 15% on prompt payments. Provision is to be made for discount to be allowed to debtors, at year-end on the basis of year’s trend of prompt payments.

All branch expenses are paid by the Head Office and all branch collections are remitted daily to Head Office.
1. Opening Stock at Branch at its cost ₹ 12,000.
2. Opening Branch Debtors ₹ 10,000.
3. Goods Sent to branch (at cost to H.O.) ₹ 1,10,000.
4. Goods received by Branch till close of the year ₹ 1,27,000.
5. Transfer from Kolkata branch to Mumbai branch at catalogue price ₹ 75,000.
6. Transfer to Kolkata branch from Mumbai branch at catalogue price ₹ 30,000.
7. Goods purchased by Mumbai branch from local suppliers (cost) ₹ 30,000
Closing stock in hand at branch out of ‘local purchases (cost) ₹ 6,000.
8. Cash Sales ₹ 74,800.
9. Credit Sales ₹ 1,45,000.
10. Goods returned by Credit Customers to branch ₹ 30,000.
11. Goods returned by Credit Customers directly to RO. ₹ 15,000.
12. Goods returned by Branch to H.O. ₹ 24,000.
13. Cash remitted by Credit Customers directly to Branch ₹ 45,635.
14. Cash remitted by Credit Customers directly to H.O. ₹ 40,000.
15. Discount Allowed to Debtors ₹ 13,365.
16. Loss of Goods by fire (at invoice price) 3,000 against which 80% of cost was recovered from the insurance Company.
17. Loss of goods at Branch through normas pilferage (at catalogue price) ₹ 3,000.
18. Branch Expenses: Paid ₹ 9,000, Outstanding ₹ 741.
19. Branch Manager is entitled to a commission @ 6% of net profits after charging such commission.

Required:
Prepare Mumbai Branch Stock Account, Mumbai Branch adjustment A/c Mumbai Branch Expenses AIc and Mumbai Branch Profit & Loss A/c and Mumbai Branch Debtors Nc under Stock & Debtors Method. (Dec 2014, 12 marks)
Answer:

Calculation of provision for discount
Prompt paying debtors during year = 13,36515% =‘ 89,100
Total debtors who made payment during the year = 45,635 + 40,000 + 13,365 = 99,000
Proportion of prompt payers = 89,10099,000 x 100 = 90%
Likely prompt paying debtors ¡n dosing debtors = 11000 x 90% = 9,900
Provision for discount = 9,900 x 15% = 1,485

Question 8.
Answer the question:
From the information of AMBA LTD. received from its branch – AB, calculate the invoice price of goods sent to branch and Profit included thereon.
Goods received from H.O. (AMBA LTD.) – ₹ 1,00,000
Goods in transit from HO. – ₹ 50,000
Goods are invoiced to branch at cost plus 25%. (June 2015, 2 marks)
Answer:
Branch Accounts
Goods “received” from H.O.  1,00,000
+ Goods in transit 50,000
Invoice Price of Goods Sent to Branch 1,50,000
Profit=Cost+25%
∴ 1/5 on Invoice Price
Profit = 1,50,0005 = 30,000

Question 9.
Answer the following question (Give workings):
TULSIAN LTD. with its Head Office in Delhi invoices goods to its Branch at Mumbai at 20% less than the catalogue price which is cost plus 50% with instructions that cash sales are to be made at invoice price and credit sales at catalogue price.

Required:
Calculate the amount of Closing Stock at Branch-Mumbai. (Dec 2015, 2 marks)
Answer:

Question 10.
LINKEN LTD., with a Head Office in Kolkata, sends goods to its /Madras branch at cost plus 25 per cent. The following particulars are available in respect of the Branch for the year ended 31st March, 2016.

You are required to prepare:
(i) Branch Stock Account
(ii) Branch Adjustment Account a
Branch Profit & Loss Account in the book of Linken Ltd. (June 2016, 5 + 2 + 2 = 9 marks)
Answer:

Question 11.
M/S YAVATI LTD. having its principal place of business at BENGALURU has a branch at New Delhi. The company sends goods to its branch at cost plus which is the selling price. The following information is given in respect of the branch for the year ended 31st March, 2016.

You are required to prepare:
(i) Branch Stock Account
(ii) Branch Debtors Account and
(iii) Branch Adjustment Account to reveal the profit of the Branch for the year ended March 31, 2016. (Dec 2016, 3+2+4 = 9 marks)
Answer:

Question 12.
Prepare a Branch account in the books of Head Office from the following particulars for the year ended 31st March, 2017 assuming that H.O. supplied goods at cost plus 25%.

(June 2017, 9 marks)
Answer:

Note: Here loading is 25125=15 of invoice price. Hence, loading on opening stock will be 15,000 × 15 = ₹ 2,500 and so on.

Question 13.
X Ltd. has its H.O. in Delhi and a branch in Mumbai. H.O. supplied goods to its branch at cost plus 33%. From the particulars given below prepare a Branch Trading Account for the year ended 31st March 2018
in the books of RO.:

It is estimated that 2% of the goods received are lost through natural wastage. (June 2018, 6 marks)
Answer:

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’s gross profit. So, no adjustment is required.

Question 14.
Rukmani Stores, Delhi invoiced goods to its Jaipur Branch @ 20% less than the Catalogue price which is cost plus 50% with instructions that cash sales were to be made at invoice price and credit sales at catalogue price and allow discount on prompt payment. The following details related to branch are provided by Rukmani Stores for the year ended 31st March 2019:

It was decided to make provision for discount of ₹ 42,500 on closing debtors for prompt payment. Depreciate the furniture @ 10% per annum. You are required to prepare Jaipur Branch Account and Goods Sent to Branch Account in the books of Rukmani Stores. (June 2019, 8 marks)
Answer:

Notes on Jaipur Branch A/c:
1. Since in Question, Invoice Price is given therefore, Jaipur Branch Stock A/c should be prepared at Invoice Price.
2. In this case Debtor method of Branch Accounting is used therefore, petty expenses of ₹ 11,000 incurred by Branch itself would not be shown at the debit of Jaipur Branch A/c. These petty expenses are already adjusted in closing balance of Branch cash of ₹ 14,000.
3. On similar logic we have correctly not shown Bad Debts and Discount relating to Jaipur Branch A/c to the debit of Jaipur Branch A/c since these Bad Debts and Discount are already adjusted in closing balance of Branch Debtors.

Note on Good Sent to Branch AIc: Since in Question, Invoice Price is given therefore, Good Sent to Branch A/c should be prepared at Invoice Price.

Notes:

•  Furniture at on 31.03.2019 = ₹ 1,20,000 x 90% = ₹ 1,08,000.
• Cash Balance at Branch on 31.03.2019 = ₹ 13,60,000 (Cash Sales) + 18,65,000 (Collection from Debtors) – ₹ 32,00,000 (Remittances from Branch) – ₹ 11,000 (Petty Exp. Paid by Branch) = ₹ 14,000.
• Closing Branch Debtors:

Question 15.
From the following particulars relating to Pune Branch for the year ending December 31, 2018, prepare Branch Account in the books of Head Office:

Goods costing ₹ 1,200 were destroyed due to fire and a sum of ₹ 1,000 was received from the Insurance Company. (Dec 2022, 15 marks)

Branch Accounting CMA Inter Financial Accounting Notes

Branch
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.

Dependent Branches
Dependent branches are branches in respect of which the whore of the accounting records are kept at Head Office only.

Independent Branches
Independent branches are branches which maintain independent accounting records.

Foreign Branches
Foreign branches are located in a foreign country (i.e. in a country other than in which the company ¡s incorporated and registered).

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.

Stock and Debtors Method
When there are large number of transactions, this method is particularly adopted by the H.O. to make efficient control over the branches.

Departmental Accounting

Question 1.
Distinguish between Branch and Departmental Accounting. (June 2013, 2 marks)
Answer:
The differences between Branch and Departmental are listed below:-

Practical Questions

Question 2.
Surya Co. Ltd. has three departments. It made purchases during the financial year 2012-13 as below

Stock as on 01.04.2012
Dept. A = 240 units
Dept. B = 160 units
Dept. C = 304 units

Sales made were
Dept. A  2040 units at ₹ 20 each
Dept. B 3840 units at ₹ 22.50 each
Dept. C 4992 units at ₹ 25 each
The rate of gross profit is uniform for all the departments. Assume the unit price of opening stock and purchase unit cost are uniform. Prepare Departmental Trading Account. (June 2013, 7 marks)
Answer:

Working Notes:
1. Cost of each unit of the different departments. Since the rate of G.P. is uniform for all products. Assuming if all goods purchased was sold then the gross profit would be:

Cost Price Per Unit
A= 20 – 20 × 20% = 16
B = 22.50 – 22.50 × 20% = 18
C = 25 – 25 × 20% 20

Purchase Price Per Unit
A = 2,000 × 16 = 32,000
B = 4,000 × 18 = 72,000
C = 4,800 × 20 = 96,000

2. Opening Stock
A = 240 × 16 = 3,840
B = 160 × 18 = 2,880
C = 304 × 20 = 6,080

4. Sales:
A:2,040 × ₹ 20 = 40,800
8: 3,840 × ₹22.5O = 86,400
C: 4,992 × ₹ 25 = 1,24,800

Question 3.
The following details are available in respect of a business for a year.

The total value of purchases is ₹ 1,00,000. It is observed that the rate of Gross Profit is the same in each department. Prepare Departmental Trading Account for the above year. (Dec 2017, 8 marks)
Answer:
1. Computation of Closing Stock Quantity (In units)

2. Computation of Gross Profit Ratio:
We are informed that the GP Ratio is the same for all departments. Selling Price is given for each department’s products but the Sale Quantity is different from that of Purchase Quantity. To find the Uniform
GP Hate, the sale value of Purchase Quantity should be compared with the Total Cost of Purchase, as under.

Opening and Closing Stocks are valued at Cost as indicated in WN 3 above. Sale Amount in the Trading Account is computed for the Sale Quantity only. Gross Profit is calculated at 20% of Sale Value.

Question 4.
The following information provided by the Shobha Departmental Store for the year ended 31 March, 2018:

The total value of purchases is ₹ 15 Lakh. it is observed that the rate or gross profit is the same in each department.
You are required to prepare the Departmental Trading Account for the year ended 31st March, 2018. (Dec 2018, 9 marks)
Answer:
(i) Computation of Opening Stock Quantity (units):

(ii) Computation of Gross Profit Ratio:

(iii) Computation of Cost per unit for each Department

Question 5.
A firm has two departments-Sawmill and Furniture. Furniture is made with wood supplied by the Sawmill department at its usual selling price. From the following figures prepare Departmental Trading and Profit and Loss Account for the year 2018:

The value of stocks in the Furniture Department consist of 75% wood and 25% other expenses. The Sawmill Department earned Gross Profit at 15% on sales in 2017. General expenses of the business as a whole came to ₹ 55,000. The firm adopts FIFO method for assigning costs to inventories. (Dec 2019, 8 marks)
Answer:

Working Notes:
1. Calculation of Stock Reserve (opening)
25,000 × 75% wood × 15% = ₹ 2,813

2. Calculation of closing stock reserve
Gross profit Rate of Sawmill of 2018
2,70,000/ (12,00,000 + 1,50,000) × 100 =20%
30,000 × 75% × 20% = ₹ 4,500

Question 6.
X Ltd. has three rt,A, B and C from the particulars given below compute:
(i) The values of stock as on 31st December 2020, and
(ii) The departmental result showing the actual amount of gross profit.

During the year ended 31st December 2020, certain items were sold at discount, and these discounts were reflected in the value of sales shown above. The items sold at discount were:

(Dec 2021, 6 marks)
Answer:

Departmental Accounting CMA Inter Financial Accounting Notes

Departmental Accounts
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.

Advantage
Departmentation offers the following advantages:

• Proper Allocation
• Control
• Proper absorption

Inter-Departmental Transfer

• Transfer made by one department to another may be recorded either:
• At Cost Price; and
• At Invoice Price i.e., Market Based Price.