Question 4 (a)
Branch Account under the Debtors System (invoice price)
7 marks
- Time to write
- About 14 minutes
From an older CBCS paper
Question
Question 4 (a) · 7 marksMrs. Bhatia & Daughters, Kanpur has a branch at Jodhpur, to which goods are invoiced at cost plus 25%, the branch's selling price. From the details below, prepare the Jodhpur Branch Account (Debtors System) to find the profit for the year ending 31st December, 2018: 7
| ₹ | |
|---|---|
| The balances as on January 1, 2018 | |
| Branch Stock at Invoice Price | 42,000 |
| Branch Debtors | 90,000 |
| Branch Cash (for Petty expenses) | 4,800 |
| Transactions during 2018 | |
| Goods invoiced to Branch | 3,60,000 |
| Goods returned by branch to head office | 15,000 |
| Credit sales at branch | 2,10,000 |
| Cash sales at branch | 1,08,000 |
| Cash received from Debtors at branch | 2,11,200 |
| Cash sent for Rent and Salaries to branch | 33,600 |
| Discount allowed to branch debtors | 1,200 |
| Petty Expenses at Branch | 3,600 |
| The balances as on 31st December, 2018 | |
| Branch Stock | 72,000 |
| Branch Debtors | ? |
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
Read from the question
- prepare the Jodhpur Branch AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.
- findFormula first, then the working, then the answer with its unit (₹, %, units).
Write it in this order
- Read the data; tick every adjustment as you plan it 1 min
- 1 Closing debtors and petty cash 1½ marks 3 min
- 2 Loading adjustments 2 marks 3 min
- 3 Branch Account and profit 3½ marks 6 min
- Check: every adjustment used, both sides agree, dates in 1 min
Short on time? Step 3 carries 3½ of the 7 marks: guard its minutes.
Try it first. About 14 minutes for 7 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 for each branch to find its profit or loss. Goods are invoiced at cost + 25%, the selling price, so the loading is 20% of invoice price. The loading is removed through stock reserve entries: on net goods sent (after returns), on closing stock, and reversed on opening stock.
- Closing debtors = 90,000 + 2,10,000 − 2,11,200 − 1,200 (discount) = ₹87,600.
- Closing petty cash = 4,800 − 3,600 = ₹1,200 (no cash was sent for petty expenses; the ₹33,600 sent was spent on rent and salaries).
- Loading: opening stock 20% × 42,000 = 8,400; net goods sent 20% × (3,60,000 − 15,000) = 69,000; closing stock 20% × 72,000 = 14,400.
Jodhpur Branch Account for the year ended 31 December 2018
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d: Stock (invoice price) | 42,000 | By Stock Reserve (loading on opening stock) | 8,400 |
| To Balance b/d: Debtors | 90,000 | By Goods sent to Branch (returns, invoice price) | 15,000 |
| To Balance b/d: Petty cash | 4,800 | By Bank: cash sales remitted | 1,08,000 |
| To Goods sent to Branch (invoice price) | 3,60,000 | By Bank: cash from debtors remitted | 2,11,200 |
| To Bank (cash sent for rent and salaries) | 33,600 | By Goods sent to Branch (loading on net goods sent) | 69,000 |
| To Stock Reserve (loading on closing stock) | 14,400 | By Balance c/d: Stock (invoice price) | 72,000 |
| To Net Profit (transferred to General P&L) | 27,600 | By Balance c/d: Debtors | 87,600 |
| By Balance c/d: Petty cash | 1,200 | ||
| 5,72,400 | 5,72,400 |
| Dr | ₹ |
|---|---|
| To Balance b/d: Stock (invoice price) | 42,000 |
| To Balance b/d: Debtors | 90,000 |
| To Balance b/d: Petty cash | 4,800 |
| To Goods sent to Branch (invoice price) | 3,60,000 |
| To Bank (cash sent for rent and salaries) | 33,600 |
| To Stock Reserve (loading on closing stock) | 14,400 |
| To Net Profit (transferred to General P&L) | 27,600 |
| 5,72,400 | |
| Cr | ₹ |
| By Stock Reserve (loading on opening stock) | 8,400 |
| By Goods sent to Branch (returns, invoice price) | 15,000 |
| By Bank: cash sales remitted | 1,08,000 |
| By Bank: cash from debtors remitted | 2,11,200 |
| By Goods sent to Branch (loading on net goods sent) | 69,000 |
| By Balance c/d: Stock (invoice price) | 72,000 |
| By Balance c/d: Debtors | 87,600 |
| By Balance c/d: Petty cash | 1,200 |
| 5,72,400 |
Check (cost basis). Sales 3,18,000 − cost of goods sold (42,000 + 3,45,000 − 72,000) × 80% = 2,52,000 gives gross profit ₹66,000; less rent and salaries 33,600, discount 1,200 and petty expenses 3,600 = ₹27,600.
Note. A memorandum stock account at invoice price (which equals selling price here) would show expected closing stock of 42,000 + 3,45,000 − 3,18,000 = ₹69,000 against ₹72,000 counted, a surplus of ₹3,000. The Debtors System takes the stock as counted, so the surplus is included in the profit.
Where the 7 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Closing debtors and petty cash | 1.5 |
| 2 | Loading adjustments | 2 |
| 3 | Branch Account and profit | 3.5 |
| Total | 7 |
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