Question 5 OR

Branch Stock, Debtors, Adjustment and Profit and Loss Accounts (Stock and Debtors System)

10 marks

Time to write
About 20 minutes

From an older CBCS paper

Question

Question 5 OR · 10 marks

Mahima Stores of Bhopal runs a retail branch at Indore. The head office makes all purchases, and charges the branch at cost plus 50%. The Indore branch remits all the cash it receives to Bhopal. The branch pays its expenses from an imprest account that Bhopal H.O. reimburses monthly. The branch keeps a sales ledger and some essential subsidiary books, but all other branch transactions are recorded at Bhopal. On 1-1-2013 the branch's stock in trade at selling price was Rs 7,200, and debtors were Rs 4.800. The branch transactions in the year ended 31-12-2013 were:

Rs
Goods received from Bhopal at selling price18,000
Cash sales8,280
Goods returned to Bhopal at selling price360
Credit sales (less returns)7,560
Authorized reduction in selling price of goods sold180
Cash received from debtors5,760
Debtors written off as irrecoverable240
Cash discount allowed to debtors180

A consignment of goods sent to the branch on 28 December, 2013, priced at Rs 216 selling price, were not received until 5-1-2014 and were not included in stock. The closing stock at selling price was Rs 8,748. Branch expenses for the year ended 31 Dec 2013 came to Rs 2,160. Prepare the Branch Stock a/c, the Branch Debtors a/c, the Branch Adjustment a/c and the Branch Profit and Loss a/c kept at Bhopal under the Stock and Debtors system. Treat any stock unaccounted for as normal wastage. 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

What the paper leaves open

  1. "Rs 4.800" is printed with a point for the comma.
  2. The authorised reduction in selling price reduces the branch stock at selling price and the loading.
  3. The goods in transit at the year end are added to stock.
  4. Stock unaccounted for is treated as normal wastage, as instructed.

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 Branch Stock Account with transit, price reduction and wastage 3 marks 5 min
  3. 2 Branch Debtors Account 2 marks 4 min
  4. 3 Branch Adjustment Account 3 marks 5 min
  5. 4 Branch Profit and Loss Account 2 marks 4 min
  6. Check: arithmetic, units (₹, %), final answer underlined 1 min

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 are charged at cost + 50%, the selling price, so the loading is 50/150 = 1/3 of selling price. Goods sent by Bhopal = 18,000 received + 216 in transit; the transit goods are added to the closing stock (paper note). The authorised price reduction reduces the stock at selling price and the loading. Stock unaccounted for is normal wastage, as instructed, charged at selling price to the Branch Adjustment Account (entry 11).

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

Dr₹Cr₹
To Balance b/d7,200By Branch Cash (cash sales)8,280
To Goods sent to Branch (18,000 + 216 in transit)18,216By Goods sent to Branch (returns)360
By Branch Debtors (credit sales)7,560
By Branch Adjustment (price reduction)180
By Branch Adjustment (normal wastage, balancing)72
By Balance c/d (8,748 + 216 in transit)8,964
25,41625,416
Dr₹
To Balance b/d7,200
To Goods sent to Branch (18,000 + 216 in transit)18,216
25,416
Cr₹
By Branch Cash (cash sales)8,280
By Goods sent to Branch (returns)360
By Branch Debtors (credit sales)7,560
By Branch Adjustment (price reduction)180
By Branch Adjustment (normal wastage, balancing)72
By Balance c/d (8,748 + 216 in transit)8,964
25,416

Branch Debtors Account (cash received from debtors is credited to it, entry 7)

Dr₹Cr₹
To Balance b/d4,800By Cash5,760
To Branch Stock (credit sales)7,560By Bad debts240
By Discount allowed180
By Balance c/d6,180
12,36012,360
Dr₹
To Balance b/d4,800
To Branch Stock (credit sales)7,560
12,360
Cr₹
By Cash5,760
By Bad debts240
By Discount allowed180
By Balance c/d6,180
12,360

Branch Adjustment Account (loading removed on net goods sent and closing stock, reversed on opening stock)

Dr₹Cr₹
To Stock Reserve (loading on closing stock, 1/3 × 8,964)2,988By Goods sent to Branch (loading, 1/3 × (18,216 − 360))5,952
To Branch Stock (price reduction)180By Stock Reserve (loading on opening stock, 1/3 × 7,200)2,400
To Branch Stock (normal wastage)72
To Branch P&L (gross profit)5,112
8,3528,352
Dr₹
To Stock Reserve (loading on closing stock, 1/3 × 8,964)2,988
To Branch Stock (price reduction)180
To Branch Stock (normal wastage)72
To Branch P&L (gross profit)5,112
8,352
Cr₹
By Goods sent to Branch (loading, 1/3 × (18,216 − 360))5,952
By Stock Reserve (loading on opening stock, 1/3 × 7,200)2,400
8,352

Branch Profit and Loss Account for the year ended 31 December 2013 (the gross profit is transferred from the Branch Adjustment Account, entry 16)

Dr₹Cr₹
To Branch expenses2,160By Branch Adjustment (gross profit)5,112
To Bad debts240
To Discount allowed180
To Net Profit (transferred to General P&L)2,532
5,1125,112
Dr₹
To Branch expenses2,160
To Bad debts240
To Discount allowed180
To Net Profit (transferred to General P&L)2,532
5,112
Cr₹
By Branch Adjustment (gross profit)5,112
5,112

Check. Sales 15,840 − cost of goods sold (7,200 + 17,856 − 8,964) × 2/3 = 10,728 gives gross profit ₹5,112, the price reduction and the wastage staying within the cost of goods sold.

Where the 10 marks sit

#ComponentMarks
1Branch Stock Account with transit, price reduction and wastage3
2Branch Debtors Account2
3Branch Adjustment Account3
4Branch Profit and Loss Account2
Total10
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