Question 5

Branch Account in the head office books (Debtors System)

10 marks

Time to write: About 20 minutes

From an older CBCS paper

Question

Question 5 · 10 marks

Farreach Ltd. invoices goods to its branch at a price of cost plus 20%; the branch sells both for cash and on credit. It meets its expenses from the cash collected from debtors and from cash sales, and remits the cash balance to head office after withholding Rs 12,000 needed for its immediate cash requirements. The branch assets as on 31st March, 2005 were:

	Rs.
Cash in hand	12,000
Trade Debtors	4,60,800
Stock at invoice price	12,96,000
Furniture and fittings	6,00,000

In the accounting year ended 31st March, 2006, goods that the head office dispatched to the branch amounted to Rs 158,40,000 at invoice price. Of the goods it received, the branch sent back to head office goods invoiced at Rs 86,400. The branch's other transactions in the year were:

	Rs
Cash Sales	116,40,000
Credit Sales	37,68,000
Cash collected by branch from credit customers	34,10,400
Returns by customers	1,22,400
Discount allowed	69,600
Bad debts written off	44,400
Expenses paid by branch	10,10,400

On 1st January, 2006 the branch bought new furniture for Rs 1,20,000, for which head office made the payments by cheque. On 31st March, 2006, branch expenses of Rs 7,200 were outstanding, and cash in hand was again 12,000. Furniture is subject to depreciation @ 16% p.a.

For the year ended 31st March, 2006, prepare the Branch account in the books of Head office. 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 the Branch accountDraw the format first (heading, columns, dates), then fill in the figures from your working.

What the paper leaves open

"Withholding... necessary" is kept as printed.
The closing stock at the branch is not given; the answer derives it from the stock account at invoice price and states this.
The figure "Rs 158,40,000" is printed in that form.

Write it in this order

Read the data; tick every adjustment as you plan it 1 min
1 Closing stock, debtors and cash remitted 3 marks 5 min
2 Furniture and depreciation 1½ marks 3 min
3 Loading adjustments 2 marks 4 min
4 Branch Account and profit 3½ marks 6 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. Under the Debtors System the head office keeps one nominal Branch Account to find the branch's profit. Goods are invoiced at cost + 20%, so the loading is 20/120 = 1/6 of invoice price; it is removed from opening stock, net goods sent and closing stock through stock reserve entries.

Workings

Item	Working	₹
Closing stock at invoice price (paper note)	12,96,000 + 1,58,40,000 − 86,400 − 1,16,40,000 − 37,68,000 + 1,22,400	17,64,000
Closing debtors	4,60,800 + 37,68,000 − 34,10,400 − 1,22,400 − 69,600 − 44,400	5,82,000
Cash remitted to H.O.	12,000 + 1,16,40,000 + 34,10,400 − 10,10,400 − 12,000	1,40,40,000
Depreciation on furniture	16% × 6,00,000 + 16% × 1,20,000 × 3/12	1,00,800
Closing furniture	6,00,000 + 1,20,000 − 1,00,800	6,19,200
Loading: opening stock / net goods sent / closing stock	1/6 × 12,96,000; 1/6 × 1,57,53,600; 1/6 × 17,64,000	2,16,000 / 26,25,600 / 2,94,000

Branch Account for the year ended 31 March 2006

Dr	₹	Cr	₹
To Balance b/d: Cash	12,000	By Stock Reserve (loading on opening stock)	2,16,000
To Balance b/d: Debtors	4,60,800	By Goods sent to Branch (returns)	86,400
To Balance b/d: Stock (invoice price)	12,96,000	By Bank (cash remitted)	1,40,40,000
To Balance b/d: Furniture	6,00,000	By Goods sent to Branch (loading on net goods sent)	26,25,600
To Goods sent to Branch (invoice price)	1,58,40,000	By Balance c/d: Cash	12,000
To Bank (new furniture)	1,20,000	By Balance c/d: Debtors	5,82,000
To Stock Reserve (loading on closing stock)	2,94,000	By Balance c/d: Stock (invoice price)	17,64,000
To Balance c/d: Outstanding expenses	7,200	By Balance c/d: Furniture	6,19,200
To Net Profit (transferred to General P&L)	13,15,200
	1,99,45,200		1,99,45,200

Dr	₹
To Balance b/d: Cash	12,000
To Balance b/d: Debtors	4,60,800
To Balance b/d: Stock (invoice price)	12,96,000
To Balance b/d: Furniture	6,00,000
To Goods sent to Branch (invoice price)	1,58,40,000
To Bank (new furniture)	1,20,000
To Stock Reserve (loading on closing stock)	2,94,000
To Balance c/d: Outstanding expenses	7,200
To Net Profit (transferred to General P&L)	13,15,200
	1,99,45,200
Cr	₹
By Stock Reserve (loading on opening stock)	2,16,000
By Goods sent to Branch (returns)	86,400
By Bank (cash remitted)	1,40,40,000
By Goods sent to Branch (loading on net goods sent)	26,25,600
By Balance c/d: Cash	12,000
By Balance c/d: Debtors	5,82,000
By Balance c/d: Stock (invoice price)	17,64,000
By Balance c/d: Furniture	6,19,200
	1,99,45,200

Check (cost basis). Net sales 1,52,85,600 − cost of goods sold (12,96,000 + 1,57,53,600 − 17,64,000) × 5/6 (1,27,38,000) = gross profit 25,47,600; less expenses 10,10,400 + 7,200 outstanding, discount 69,600, bad debts 44,400 and depreciation 1,00,800 = ₹13,15,200.

Where the 10 marks sit

#	Component	Marks
1	Closing stock, debtors and cash remitted	3
2	Furniture and depreciation	1.5
3	Loading adjustments	2
4	Branch Account and profit	3.5
	Total	10

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