Chapter 7 Inland BranchSystem of Maintaining Books of Accounts (4) Debtor’s system Stock and...

Innovative Institute B.Com.(H)

Financial Accounting By – Dheeraj Kr. Singh 1

Meaning of Branch:-

With the expansion of business the owner start new units of the same type of business at different places either in same States or in different states or even in some cases outside the Country. All these different units are known as” Branches”. The main unit, which controls all these units, is called “Head Office”. For Example Bata Shoe Company, Videocon Show Room, Reliance Show Room.

Type of Branches:- Type of Branches

Inland Branches Foreign Branches (Branch within the Country) (Branch outside the Country)

Dependent Branch Independent Branch (Sole selling agent) System of Maintaining Books of Accounts (4) Debtor’s system Stock and Debtor System Final Account System Whole sale Branch System

Dependent Branch: -

It is fully controlled by Head Office and Sale those goods which is supplied by Head Office.

Branch normally not purchases goods from the local market but under special circumstance

and subject to strict quality control it may be purchase goods from local sources with the

permission of Head Office. The Branch does not maintain the books of accounts; only

Head Office maintains the book of accounts

Chapter 7

Inland Branch

Branch Branch “Head office” Accounts of all

branches are

maintained by

Head office

Branch Branch

Branch



Accounting Treatment under different System of Maintaining Books of Accounts

(1) First Method Debtors System: -

Under this system, the Head Office Prepares a separate account for each Branch on the Basis of its Location Such As Kolkatta Branch, Delhi Branch etc. It means for every Branch a separate Branch Account is prepared in the Books of Head Office

When goods are sent by Head office to Branch at their Cost then Head office

prepare its Branch A/c at the Cost Price.

When goods are sent by Head office to Branch at their Invoice Price then Head

office prepare its Branch A/c at the Invoice Price

Cost to Head office or only Cost Price: - “Cost Price”

Cost to Branch: - “Invoice Price”

Journal Entries under Debtors System

1. To record opening balances of Branch

Assets

Branch A/c…………………………...……….Dr.

To Branch Assets (individually)

2. To record opening balance of Branch

Liabilities

Branch Liabilities (individually)…...…….....Dr.

To Branch A/c

3. When goods are supplied by the Head

office/another branch to branch

Branch A/c ………………….…..…………....Dr.

To Goods Sent to Branch A/c

4. When the goods are return by the

branch /

Goods Sent to Branch A/c…...…...……….....Dr.

To Branch A/c

5. Branch customer return goods

Directly to Head office

Goods Sent to Branch A/c…...….….…..…....Dr.

To Branch A/c

And

Sales Return to H.O. A/c………………..…..Dr.

To Debtors A/c

6. When goods supplied by Branch to

another Branch under H.O

instruction

Goods Sent to Branch A/c……....……….......Dr.

To Branch A/c

6. When goods supplied by the head

office but not received by the Branch

Goods-in Transit A/c ……………...…......….Dr.

To Branch A/c

7. When the head office paid the Branch

Expenses or Cash Sends H.O to the

Branch for meeting its expenses

Branch A/c……………...……………...…….Dr.

To Cash /Bank A/c

8. When Remittance are received by the

Head Office from the Branch

Cash /Bank A/c………………..……….….…Dr.

To Branch A/c

9. When Remittance are sent by the

Branch but not received by Head

Office

Cash in Transit A/c……………...…..……….Dr.

To Branch A/c

Head office sent goods to its Branch

At Cost Price At Invoice Price



10. When Commission is paid or payable

to Manager of Branch

Branch A/c…………………………...……….Dr.

To Manager Commission A/c

11. When Depreciation is Allocated to

Branch by Head Office

Branch A/c ……………………………..…….Dr.

To Depreciation A/c

12. To Record the Closing balance of

Branch Assets

Branch Assets A/c (Individually)...………....Dr.

To Branch A/c

13.

To Record the Closing balance of

Branch Liabilities

Branch A/c…………………………………....Dr.

To Branch Liabilities (Individually)A/c

14.

To record Profit or Loss of the Branch

If there is Profit from the Branch Branch A/c……………………….………...…Dr.

To General Profit & Loss A/c

If there is Loss from the Branch General Profit & Loss A/c…..…………..…..Dr.

To Branch A/c

15. When the balance in Goods sent to

Branch A/c is transferred to Trading A/c Goods Sent to Branch A/c………......……….Dr.

To Purchase A/c

Format of Branch A/c (at Cost Price) Dr. Cr.

Particulars Rs. Particulars Rs.

To Balance b/d (Opening balance of

Individual assets to be Shown Separately)

Stock xxxx Debtors xxxx Branch Bank xxxx Furniture & Fixture xxxx Computer xxxx Pre-Paid Expenses xxxx Other Assets xxxx Petty Cash xxxx xxxxx

By Balance b/d (Opening balance of

Individual liabilities to be shown separately) Creditors xxxx Outstanding Expenses xxxx

xxxxx

To Goods Sent to Branch A/c (Value of Goods sent/ transfer by H.O) xxxx (Goods received other Branches) xxxx

xxxx

By Goods Sent to Branch A/c (Goods Returned to H. O by Branch) xxxx (Goods Sent to Other Branches) xxxx

xxxx

To Bank (for expenses paid / reimburse/ met

by Head office)

Salary xxxx Rent xxxx Petty Cash xxxx

(Actual amount sent by H.O) Insurance xxxx Purchase of Fixed Assets xxxx

xxxx

By Bank – Remittance (Money sent to

H.O.by Branch)[When Remittance is not given in question then sum of Cash sales and cash collected from Debtors etc. is taken as Remittance]

Cash Sales xxxx Cash Collected from Debtors or

Ledger Accounts xxxx Cash from sale of Fixed Assets xxxx Cash Paid by Debtors Directly to H.o. xxxx Cash received from Insurance Company xxxx

xxxx

To Profit & Loss A/c – Profit (Balancing Figure) xxxx

By Profit & Loss A/c – Loss (Balancing Figure)

xxxx

To Balance c/d (Closing balance of

Individual liabilities) Creditors xxxx Outstanding Expenses xxxx

By Balance c/d (Closing balance of

Individual asset after taking effect of depreciation on Fixed Assets)

Stock in Hand xxxx Stock in Transit xxxx Debtors xxxx Less:- Provision for Doubtful Debts xxx xxxx Branch Bank xxxx Furniture & Fixture xxxx Computer xxxx Pre-Paid Expenses xxxx Petty Cash xxxx xxxxx

Total Total



Format of Goods sent to Branch A/c Dr. Cr.


To Branch A/c xxxx By Branch A/c xxxx

To Purchase / Trading A/c

- transfer

xxxx

Total Total

Notes: -

1 Depreciation, Profit or Loss on Fixed Assets is not shown in Branch Account. Since Fixed Assets at end are appear at the adjusted figure.

2 Bad Debts, Discount Allowed, Sales Returns by Customer to branch, Credit sale etc. are not recorded in Branch A/c since debtors at end are appear at the adjusted figure.

3 If Expenses is Paid by Branch and not reimbursed by H.O it is not shown in the Branch A/c. it is deducted “from the amount” sent to Head Office by Branch

4 Trade Discount to Customer (already taken in to Account while invoicing) is not considered in

Branch A/c Because Trade Discount is not recorded in the books of Accounts

5 Only Good Debtors are recorded in the Branch A/c. It means Debtors are to be shown after deducting “Provision for Doubtful Debts”.

6 Purchases of Fixed Assets by Branch: - (a) Closing Balance of Fixed Assets was Increase (b) and either the amount sent to Branch is decreases or creditors at the end is Increase

7 Goods Lost in Transit, Normal or abnormal Loss of Stock are not recorded in Branch A/c.

8 Cash Purchases and Credit Purchases would not appear in the Branch Account since both of

them have been already adjusted in the Creditors Account and Cash Account respectively.

9 Goods returned by Customers Directly to Head- Office: - Same treatment is done for it; which was held for Goods return by Branch

10 When Petty Cash is maintained on the Imprest System in means opening Balance

and Closing Balance of Petty Cash will be same if Closing Balance of

Petty Cash is not given.

11 Cash Send by Customer directly to Head office is also included in Remittance to Head Office.

Calculation of Goods sent to Branch = Cost Price of Goods sold + Closing Balance

of Stock – Opening Balance of Stock

Cost Price of Goods sold = Sales Price minus Profit Margin

When “Total Goods send to Branch” by Head office are not receive by Branch it

means there are some goods which are in Transit, it is treated as Closing Balance

of goods under head “Stock in Transit”.



Format of Memorandum Branch Debtors A/c3

[When “Closing balance of Branch Debtors” or “Cash collection from Branch Debtors” is not

given then in Working Note Memorandum Branch Debtors Account is prepared]

Dr. Cr.


To Balance b/d xxxx By Cash - Collection from Debtors xxxx

To Sales – Credit Sale xxxx By Cash Remitted to H.O xxxx

To Bills Receivable A/c – B/R

dishonored

xxxx By Sales Return to Branch xxxx

By Sales Return to H.O. xxxx

By Bills Receivable A/c- B/R issued xxxx

By Bad Debts xxxx

By Cash Discount Allowed xxxx

By Allowance to Customers xxxx

By Balance c/d xxxx

Total Total

Note: – In Debtors Accounts following items are not to be considered:-

Bad Debts Recovered and

Provision for Doubtful debts

Format of Petty Cash A/c Dr. Cr.


To Balance b/dTo xxxx By Expenses – Petty expenses xxxx

To H.O Cash – Cash sent by H.O xxxx By Balance c/d xxxx

Total Total

Format of Branch Bank A/c

(When any expense is paid by Branch but not reimburse by H.O then

branch Bank A/c is necessarily prepared.

Dr. Cr.


To Balance b/dTo xxxx By Expenses – Expenses paid by

Branch

xxxx

To Cash –Cash sales xxxx By H.O Bank – Remittance to H.O xxxx

To Branch Debtors A/c

(Cash received from Debtors)

xxxx

By Balance c/d

xxxx

Total Total



When goods are sent by Head office to Branch at Invoice Price:–

Invoice Price = Cost Price + Profit / Margin / Profit Margin / Loading

Loading or Profit = Invoice Price – Cost Price

Loading

Rate of Loading = ––––––––––––

Invoice Price

Journal Entries (for Eliminating Loading) When goods are sent at IP

1. To remove Loading from opening

balances of Branch Stock

Branch Stock Reserve A/c...…………….Dr.

To Branch A/c

2. To remove Loading from Goods Sent to

Branch by Head Office or Goods Received

from any other Branch

Goods Sent to Branch A/c……………....Dr.

To Branch A/c

3. To remove Loading from Goods Return

by Branch to Head Office or Goods sent to

any other Branch

Branch A/c…………………….…………Dr.


4. To remove Loading from Closing balances

of Branch Stock and Goods in Transit

Branch A/c…………………….…………Dr.

To Branch Stock Reserve A/c



Format of Branch A/c (at Invoice Price) Dr. Cr.


To Balance b/d (opening balance of

Individual assets to be Shown Separately)

Stock xxxx Debtors xxxx Branch Bank xxxx Furniture & Fixture xxxx Computer xxxx Pre-Paid Expenses xxxx Other Assets xxxx Petty Cash xxxx xxxxx

By Balance b/d (opening balance of

Individual liabilities to be shown separately) Creditors xxxx Outstanding Expenses xxxx

xxxx

BY Stock Reserve A/c (loading on Opening Stock

xxxx

To Goods Sent to Branch A/c (Value of Goods sent/ transfer by H.O) xxxx (Goods Received from other Branches) xxxx

Xxxx3

To Goods Sent to Branch A/c (Loading on goods sent to Branch By H.O) xxxx

(Loading on goods received from other Branch) xxxx

xxxx

To Goods Sent to Branch A/c (Loading on goods return by Branch to H.o) xxx (Loading on goods Received from other Branches) xxx

xxxx

By Goods Sent to Branch A/c (Goods Returned by Branch to H. O) xxxx (Goods Sent to Other Branches) xxxx

xxxx

To Bank (for expenses paid / reimburse by

Head office)

Salary xxxx Rent xxxx Petty Cash xxxx

(Actual amount sent by H.O) Insurance xxxx Purchase of Fixed Assets xxxx

xxxx

By Bank – Remittance (money sent to

H.O by Branch) [When Remittance is not give in question then sum of Cash sales and cash collected from Debtors etc is taken as Remittance]

Cash Sales xxxx Cash Collected from Debtors or

Ledger Accounts xxxx Cash from sale of Fixed Assets xxxx

Cash Paid by Debtors Directly to Ho xxxx Cash received from Insurance Company xxx

xxxx

To Profit & Loss A/c – Profit (Balancing Figure) xxxx

By Profit & Loss A/c – Loss (Balancing Figure)

xxxx

To Stock Reserve A/c – Loading on

Closing Stock xxxx

BY Balance b/d (Closing balance of

Individual asset after taking effect of depreciation on Fixed Assets)

Stock in Hand xxxx Stock in Transit xxxx Debtors xxxx Less:- Provision for Doubtful Debts xxx xxxx Branch Bank xxxx Furniture & Fixture xxxx Computer xxxx Pre-Paid Expenses xxxx Petty Cash xxxx xxxx

To Balance c/d (Closing balance of

Individual liabilities) Creditors xxxx Outstanding Expenses xxxx

xxxx

Total Total



(2) Second Method Stock – Debtors System: -

Under this System a number of Accounts are prepared by Head Office for every Branch.

Generally following accounts are prepared:-

(1) Branch Stock A/c at Invoice Price

(2) Branch Adjustment A/c

(3) Branch Profit and Loss A/c

(4) Branch Debtors A/c

(5) Branch Expenses A/c

(6) Stock Reserve A/c

Journal Entries under Stock & Debtors Method

1. When goods are supplied by the

Head office/another branch to the

branch

Branch Stock A/c ………….…..……….Dr.


2. When the goods are return by the

branch to Head Office/ When

goods supplied by Branch to

another Branch under H.O

instruction

Goods Sent to Branch A/c…...….……....Dr.

To Branch Stock A/c

3. For Credit Sales of goods by the

Branch

Branch Debtors A/c……..…...….……....Dr.

To Branch Stock A/c

4. For Cash Sales of goods by the

Branch

Branch Cash A/c….……..…...….……....Dr.

To Branch Stock A/c

5. For Sales Return by customer or

Debtors

Branch Stock A/c……..…...…….……....Dr.


6. Branch customer return goods

Directly to Head office

Branch Stock A/c……..…...…….……....Dr.


And

Goods Sent to Branch A/c…...….……....Dr.

To Branch Stock A/c

7. For Bad Debts Written off ,

Discount and Allowances allowed

to Customers

Branch Profit & Loss A/c……………….Dr.


8. To Record Abnormal Loss of

Stock (Due to abnormal factor

such as Fire, Flood, Theft,

Accident, poor packing etc.)

Branch Adjustment A/c…………………Dr.

Branch Profit &Loss A/c………….…….Dr.

To Branch Stock A/c

9. To Record Normal Loss of Stock

(Due to the inherent quality of the

product such as Evaporation etc)


To Branch Stock A/c

10. Agreed allowances to Customer at

Selling Price already Taken While

Invoicing


To Branch Stock A/c

11. To Record Surplus Branch Stock A/c…………………..……Dr.

To Branch Adjustment A/c



12. To Record Shortage Branch Adjustment A/c…………………Dr.

Branch Profit &Loss A/c………….…….Dr.

To Branch Stock A/c

13. When goods supplied by the head

office but not received by the

Branch

Goods-in Transit A/c ……………......….Dr.

To Branch A/c

14. If Local Purchase is made by the

Branch with instructions of Head

Office

Branch Stock A/c…………..……………Dr.

To Branch Cash A/c

15. To remove Loading from opening

balances of Branch Stock

Branch Stock Reserve A/c...…………….Dr.


16. To remove Loading from Goods

Sent to Branch by Head Office or

Goods Received from any other

Branch

Goods Sent to Branch A/c……………....Dr.


17. To remove Loading from Goods

Return by Branch to Head Office

or Goods sent to any other Branch

or Goods Directly Return by

Customer by Head Office



18. To remove Loading from Closing

balances of Branch Stock and

Goods in Transit


To Branch Stock Reserve A/c

12. To record Gross Profit or Loss of the Branch

If there is Gross Profit from the

Branch


To Branch Profit & Loss A/c

If there is Gross Loss from the

Branch

Branch Profit & Loss A/c…..……….…..Dr.


13. To Record Branch Expenses in

Branch Profit & Loss A/c

Branch Profit & Loss A/c…..……….…..Dr.

To Branch Expenses A/c

14. To record Net Profit or Net Loss of the Branch

If there is Net Profit from the

Branch

Branch Profit & Loss A/c……….………Dr.

To General Profit & Loss A/c

If there is Net Loss from the

Branch

General Profit & Loss A/c…..…………..Dr.


15. When the balance in Goods sent to

Branch A/c is transferred to

Trading A/c

Goods Sent to Branch A/c……...……….Dr.

To Purchase A/c



Treatment of Loss: Losses are two types

(i)Normal Loss

(ii)Abnormal Loss

Normal Loss: It is unavoidable loss. It is natural loss and arising due to inherent

feature or quality of goods. For example- Evaporation, Normal Leakage/Spoilage etc.

Abnormal Loss: It is avoidable loss and is usually caused by accident, theft, fine,

abnormal leakage, breakage etc.

Note: - Abnormal Loss Such as:-

1) Loss by Fire; 2) Loss in Transit; 3) Pilferage; 4) Loss by Theft; 5) Loss by Accident etc; Treatment of Normal & Abnormal Loss under Debtors and Stock & Debtors System:-

Normal Loss

Abnormal Loss

Debtors System

No Treatment in Branch A/c

No Treatment in Branch A/c

Stock & Debtors System

Lokesh Ltd. Sent goods to its

Ratlam Branch at cost plus 25%

Treatment in Branch Stock A/c

Total Amount of Normal Loss is

transferred to Branch Adjustment

A/c

Treatment in Branch Stock A/c

Loading part of Abnormal Loss is

transferred to Branch Adjustment A/c

and Cost part is transferred to Branch

Profit & Loss A/c

Normal Loss A/c……………..Dr.


Abnormal Loss A/c…………….Dr.



Loss in weight (normal) at invoice

price Rs.500

Normal Loss A/c………….....Dr. 500

To Branch Adjustment A/c 500

Loss in transit at I.P. Rs. 2,000

Abnormal Loss A/c………….Dr. 2,000

To Branch Adjustment A/c 400

To Branch Profit & Loss A/c 1,600

Loss

Normal Loss

1. It is natural loss so it is unavoidable loss

2. It is recorded in Branch Stock A/c

3. Total Normal Loss is transferred to

Branch Adjustment A/c

Abnormal Loss

1. It is unnatural loss so it is avoidable loss. It

can be control by better Internal Control.

2. It is recorded in Branch Stock A/c

3 Loading Part of Abnormal Loss is recoded in

Branch Adjustment A/c and Cost Portion is

recorded in Branch Profit and Loss A/c



Format of Branch Stock Account

(It is the summary of stock and it is always prepared at Invoice Price. If any item of Branch stock A/c is given at Cost price it must be converted in to Invoice price and then recorded in Branch Stock A/c. Certain times in Branch Stock A/c there may be a Surplus or Shortage it will be the Balancing figure)

When Stock + (Increase) When Stock – (Decrease) Dr. Cr.


To Balance b/d (opening bal. of stock) 1

xxxx

To Goods Sent to Branch A/c (goods sent to branch by H.O)

2

xxxx By Goods Sent to Branch (Return to H.O by Branch) 5

xxxx

To Branch Debtors A/c (sale return by customer)

xxxx By Branch Debtors A/c- (Credit sale made by Branch)

xxxx

To Branch Debtors A/c (sale return by customer direct to H.O)

xxxx By Goods Sent to Branch (return by Debtor / Customer Direct to H.O)

[6]

xxxx

By Branch Cash A/c- Cash Sales xxxx

To Goods Sent to Branch A/c (goods received from other Branches)

3

xxxx By Goods Sent to Branch A/c (goods sent to other Branches)

7

xxxx

To Branch Cash A/c – local Purchase xxxx By Abnormal Loss or Branch Adjustment A/c (Loading) Branch Profit & Loss A/c (cost) 8

xxxx

By Normal Loss or Branch Adjustment A/c

(Total) 9

xxxx

By Branch Adjustment A/c– Agreed

allowances to Customer of Selling Price already Taken While Invoicing

10

n (Total)

To Surplus or Branch Adjustment A/c

(Total) 4

(Balancing Figure)

xxxx

By Shortage or Branch Adjustment A/c (Loading) Branch Profit & Loss A/c (cost)

(Balancing Figure) 11

xxxx

By Balance c/d (Closing bal. of Stock) Stock in Hand xxxx Stock in Transit xxxx 12

xxxx

Total Total

When “Total Goods send to Branch” by Head office are not receive by Branch it means there are some

goods which are in Transit, it is treated as Closing Balance of goods under head “Stock in Transit”.

Only Stock lost at Branch are recorded in “Branch Stock

Account”



Format of Branch Adjustment A/c It is prepared to find out Gross Profit of a Particular Branch. Here loading of different

item of Branch Stocks are taken and two items Normal Loss and Surplus of Branch

Stock is taken in “Total Figure”. And one special item “Agreed allowances to Customer

of Selling Price already Taken While Invoicing” it also taken in “Total Figure”.

Dr. Cr.


To Goods Sent to Branch A/c(Loading on goods return to H.O) 5

xxxx

By Stock Reserve A/c (Loading on Opening Stock)

1

xxxx

To Goods Sent to Branch A/c (Loading

on goods Send to H.O Directly by Customer)

6

xxxx

By Goods Sent to Branch A/c(Loading on goods sent to branch by H.O) 2

xxxx

To Goods Sent to Branch A/c (Loading on goods sent to other Branches)

7

xxxx

To Branch Stock A/c (Loading on abnormal Loss

8

xxxx

By Goods Sent to Branch A/c (Loading on goods received from other branches) 3

xxxx

To Branch Stock A/c) 9

(Normal Loss)

(Total)

xxxx

By Branch Stock A/c

4

(Surplus)

(Total)

xxxx

To Branch Stock A/c Agreed allowances

to Customer at Selling Price already Taken While Invoicing

1 101

11(Total)

xxxx

To Branch Stock A/c (Loading on Shortage)

11

xxxx

To Stock Reserve A/c (Loading on Closing Stock)

12

xxxx

To Profit and Loss A/c – Gross Profit

Balancing Figure

xxxx

By Profit and Loss A/c – Gross Loss

Balancing Figure

xxxx

Total Total



Format of Branch Profit and Loss A/c

It is prepared to find out Net Profit of a Particular Branch

Dr. Cr.


To Branch Adjustment A/c – Gross Loss xxxx By Branch Adjustment A/c– Gross Profit xxxx

To Branch Stock A/c (Cost Portion of abnormal Loss) 8

xxxx

By Insurance Company A/c (Amount received from Insurance Company)

xxxx

To Branch Stock A/c (Cost Portion of Shortage) 11

xxxx

To Branch Debtors A/c Bad Debts xxxx Discount Allowed xxxx

xxxx

To Branch Expenses A/c Salaries and Wages xxxx Rent, Rates and Taxes xxxx Insurance Charges xxxx Petty Cash Expenses xxxx Cash Losses at Branch xxxx

xxxx

To Depreciation on Fixed Assets xxxx

To General Profit and Loss A/c – Profit on Branch)

By General Profit and Loss A/c –Loss on Branch)

Total Total

Note: - 1. Cash Losses at Branch: - The entire Loss of Cash is debited to Profit and Loss A/c 2. If any stock is lost and against it insurance claim is received then it is recorded in Credit side of Branch Profit and Loss A/c

Format of Stock Reserve A/c

Dr. Cr.


To Branch Adjustment A/c (Loading on opening Stock)

xxxx

By Balance b/d (opening Balance of Stock Reserve)

xxxx

To Balance c/d (Closing Balance of Stock Reserve)

xxxx To Branch Adjustment A/c (Loading on Closing Stock)

xxxx

Total Total

Format of Branch Expenses A/c Dr. Cr.


To Branch Cash A/c

Salaries and Wages, Rent, Rates and Taxes, Insurance, Actual Petty expenses

xxxx

By Branch Adjustment/ Branch Profit & Loss A/c- Transferred

xxxx

Total Total



Calculation Manager Commission payable:-

Case 1:- If the manager is allowed commission on the Net Profit before Charging such Commission

% of Commission

Commission = Net profit before charging such commission x ––––––––––––––––––

100

Case 2:- If the manager is allowed commission on the Net Profit after Charging such Commission

% of Commission

Commission = Net profit before charging such commission x –––––––––––––––––––––––––– 100 + Rate of Commission

Calculation of Net Profit before charging such commission =Sum of credit

side minus all items of Debit side.

Some Important Points: –

1 Certain times Credit sale is made on above than Invoice Price, in such a

case a reverse entry is made in the Branch Stock A/c for the Excess Price

above than Invoice Price.

To Branch Adjustment A/c (excess price than Invoice Price)

xxxx By Branch Debtors A/c (at Selling Price)

xxxx

Example 1:-

X Ltd invoiced goods to it Chandigarh Branch at 20% less than the catalogue price which is cost plus

50% with instruction that cash sales were to be made at invoice price and credit sales at catalogue price.

Total Credit Sales is Rs.2,40,000

Branch Stock A/c


(2,40,000 x 30/150)

48,000 By Branch Debtors A/c 2,40,000

Let cost price = Rs.100

Catalogue Price = 100 + (100 x 50/100) = 100 + 50 = Rs.150

Invoice Price = 150 – (150 x 20/100) =Rs.120

Loading on Catalogue Price = 150 – 120 =Rs.30

Rate of Loading on Invoice Price = Loading on Catalogue Price/ Catalogue Price = 30/150

2 When Goods are Directly Return to H. O by Customer: -

To Branch Debtors A/c (sale return by customer direct to H.O)

xxxx By Goods Sent to Branch (return by Debtor/ Customer Direct to H.O)

xxxx

Example 2:-

X Ltd invoiced goods to it Chandigarh Branch at 30% less than the catalogue price which is cost plus

100% with instruction that cash sale were to be made at invoice price and credit sales at catalogue price.

Total Credit Sales is Rs.2,40,000 out of which 40,000 goods are return by customers.



Branch Stock A/c


(2,40,000 x 60/200)

72,000 By Branch Debtors A/c 2,40,000

To Branch Debtors A/c 40,000 By Goods Sent to Branch A/c

(40,000 x 60/200)

12,000

Let cost price = Rs.100

Catalogue Price = 100 + (100 x 10/100) = 100 + 100 = Rs.200

Invoice Price = 200 – (200 × 30/100) = Rs.140

Loading on Catalogue Price = 200 – 140 = Rs.60

Rate of Loading on Invoice Price = Loading on Catalogue Price/ Catalogue Price = 60/200

3 Foods are sold above than Invoice Price and return by Customer Direct

to H. O

To Branch Debtors A/c (sale return by customer direct to H.O at I.P)

xxxx By Goods Sent to Branch (return by Debtor/ Customer Direct to H.O at Selling Price))

xxxx

To Branch Adjustment A/c (excess price than Invoice Price)

xxxx

4 Local Purchase made by the Branch and Sale such goods above than its

Purchase Price: - Sales of such goods are included in Normal Sales

To Branch Adjustment A/c (Load on Total Local Purchase: - Some part of the Local Purchase has been sold and some part will be in Closing Stock)

xxxx

By Branch Cash/ Branch Debtors A/c

(This sale will be included in Normal Sales)

xxxx

By Balance c/d Local Purchase at Selling Price

xxxx

5Agreed allowances to Customer at Selling Price already Taken While

Invoicing:-

Branch Adjustment A/c …………………………Dr

To Branch Stock A/c

6If there is no information about closing balance of Stock or Stock such as …..? is not

given in the question then it has been assume that there is no balance of Closing Stock

Vani Music system invoices goods to its Faridabad branch at cost plus 20%. During the accounting year

2014-15, Vani Music System invoiced goods amounting Rs. 15,000 were damaged in transit and insurance

company admitted the claim of Rs. 15,000. Show the treatment of los in the books of Head office under:

(i) Debtor System

(ii) Stock and Debtors System

B.Com (H) 2015 External 4 Marks

Chapter 7 Inland BranchSystem of Maintaining Books of Accounts (4) Debtor’s system Stock and...

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