Question 5

Branch accounts at invoice price (Stock and Debtors System)

10 marks

Time to write: About 20 minutes

From an older CBCS paper

Question

Question 5 · 10 marks

Pune head office supplies goods to its Nashik branch at invoice price, which is cost plus 50%. The branch remits all the cash it receives to Pune, and the head office pays all Branch expenses. The particulars of Nashik Branch for the year 2014 are:

	₹
Stock at Branch on 1-1-2014 at Invoice price	72,000
Branch Debtors on 1-1-2014	14,400
Petty cash on 1-1-2014	120
Goods received from Head Office at Invoice price	2,23,200
Goods returned to Head Office	3,600
Credit sales less returns	1,00,800
Allowances to customers off selling price already adjusted while Invoicing	2,400
Cash received from Debtors	1,08,000
Discount allowed to Debtors	2,880
Expenses paid by Head Office: Rent 2,880; Salaries 28,800; Petty cash 1,200	32,880
Cash sales	1,24,800
Stock at Branch on 31-12-2014	64,800
Petty cash balance on 31-12-2014	120

Prepare:

the Branch stock account
the Branch debtors account
the Branch adjustment account
the Branch profit & loss account

in the Head Office's books. 10

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

20 minfor 10 marks

Read from the question

Prepare … accountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

Allowances off selling price were already adjusted when invoicing and do not reduce the stock at invoice price again.
Expenses paid by head office include a petty cash remittance; petty cash expenses are the remittance less the change in the petty cash balance.

Write it in this order

Read the data; tick every adjustment as you plan it 1 min
1 Branch Stock Account 3 marks 5 min
2 Branch Debtors Account 2 marks 4 min
3 Branch Adjustment Account 3 marks 5 min
4 Branch Profit and Loss Account 2 marks 4 min
Check: every adjustment used, both sides agree, dates in 1 min

1234

Try it first. About 20 minutes for 10 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Basis. Goods sent to the branch and branch stock are at invoice price unless stated otherwise. Invoice price is cost + 50%, so the loading is 50/150 = 1/3. The allowances off selling price were already adjusted when invoicing and do not reduce the stock at invoice price again (paper note). Petty cash expenses = remittance 1,200 + opening 120 − closing 120 = ₹1,200. The stock account leaves an unexplained shortage of ₹1,200 at invoice price; a shortage with no stated normal loss is abnormal: loading to the Branch Adjustment, cost to the Branch P&L (entry 10).

Branch Stock Account (invoice price) (credit and cash sales are credited to Branch Stock, entries 4 and 5)

Dr	₹	Cr	₹
To Balance b/d	72,000	By Goods sent to Branch (returns)	3,600
To Goods sent to Branch	2,23,200	By Branch Debtors (credit sales less returns)	1,00,800
		By Branch Cash (cash sales)	1,24,800
		By Branch Adjustment (shortage: loading)	400
		By Branch P&L (shortage: cost)	800
		By Balance c/d	64,800
	2,95,200		2,95,200

Dr	₹
To Balance b/d	72,000
To Goods sent to Branch	2,23,200
	2,95,200
Cr	₹
By Goods sent to Branch (returns)	3,600
By Branch Debtors (credit sales less returns)	1,00,800
By Branch Cash (cash sales)	1,24,800
By Branch Adjustment (shortage: loading)	400
By Branch P&L (shortage: cost)	800
By Balance c/d	64,800
	2,95,200

Branch Debtors Account (cash received from debtors, and bad debts and discount, are credited to it, entries 7 and 8)

Dr	₹	Cr	₹
To Balance b/d	14,400	By Cash	1,08,000
To Branch Stock (credit sales)	1,00,800	By Discount allowed	2,880
		By Balance c/d	4,320
	1,15,200		1,15,200

Dr	₹
To Balance b/d	14,400
To Branch Stock (credit sales)	1,00,800
	1,15,200
Cr	₹
By Cash	1,08,000
By Discount allowed	2,880
By Balance c/d	4,320
	1,15,200

Branch Adjustment Account (loading removed on net goods sent and closing stock, reversed on opening stock: entries 13 to 15)

Dr	₹	Cr	₹
To Stock Reserve (loading on closing stock, 1/3 × 64,800)	21,600	By Goods sent to Branch (loading, 1/3 × 2,19,600)	73,200
To Branch Stock (shortage: loading)	400	By Stock Reserve (loading on opening stock, 1/3 × 72,000)	24,000
To Branch P&L (gross profit)	75,200
	97,200		97,200

Dr	₹
To Stock Reserve (loading on closing stock, 1/3 × 64,800)	21,600
To Branch Stock (shortage: loading)	400
To Branch P&L (gross profit)	75,200
	97,200
Cr	₹
By Goods sent to Branch (loading, 1/3 × 2,19,600)	73,200
By Stock Reserve (loading on opening stock, 1/3 × 72,000)	24,000
	97,200

Branch Profit and Loss Account for 2014 (the gross profit is transferred from the Branch Adjustment Account, entry 16)

Dr	₹	Cr	₹
To Rent	2,880	By Branch Adjustment (gross profit)	75,200
To Salaries	28,800
To Petty expenses	1,200
To Discount allowed	2,880
To Branch Stock (shortage at cost)	800
To Net Profit (transferred to General P&L)	38,640
	75,200		75,200

Dr	₹
To Rent	2,880
To Salaries	28,800
To Petty expenses	1,200
To Discount allowed	2,880
To Branch Stock (shortage at cost)	800
To Net Profit (transferred to General P&L)	38,640
	75,200
Cr	₹
By Branch Adjustment (gross profit)	75,200
	75,200

Check. Sales 2,25,600 − cost of goods sold (72,000 + 2,19,600 − 64,800 − 1,200) × 2/3 = 1,50,400 gives gross profit ₹75,200.

Where the 10 marks sit

#	Component	Marks
1	Branch Stock Account	3
2	Branch Debtors Account	2
3	Branch Adjustment Account	3
4	Branch Profit and Loss Account	2
	Total	10

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