Question 5

Branch Account under the debtors method (invoice price)

18.75 marks

Time to write: About 38 minutes

From an older CBCS paper

Question

Question 5 · 18.75 marks

5 Kota shoes Ltd. has its branch at Udaipur. Goods are invoiced to the branch at 20% profit on sales. The Branch has been told to send all cash to the head office daily. The head office pays all expenses, except petty expenses, which the branch manager meets. From the particulars below, prepare the Branch account in the books Kota shoes Ltd.

Stock (at invoice price) on 1st January, 2015	Rs. 45,000
Sundry debtors, 1st January, 2015	Rs. 27,000
Cash in hand, 1st January, 2015	Rs. 6,000
Office Furniture, 1st January, 2015	Rs. 18,000
Goods invoiced at Invoice Price from Head office	Rs. 2,40,000
Discount allowed to debtors	Rs. 2,700
Petty expense paid by branch manager	Rs. 4200
Goods returned to head office	Rs. 6,000
Goods returned by debtors	Rs. 1,800
Cash received from debtors	Rs. 75,000
Cash Sales	Rs. 1,50,000
Credit Sales	Rs. 1,05,000
Stock at invoice price, 31st December, 2015	Rs.21,000

Expenses paid by the head office: Rent Rs. 3,600; salary Rs. 8,400; stationery Rs. 750. Depreciation on furniture is to be provided at 10% p.a.

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

38 minfor 18.8 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

"In the books Kota shoes Ltd." is kept as printed. Cash sales and cash from debtors are remitted to head office; the branch account is prepared by the debtors method at invoice price, with the loading adjusted. No mark is printed for the question; the paper asks for any four of six, equal marks.

Write it in this order

Read the data; tick every adjustment as you plan it 2 min
1 Closing debtors, cash and furniture 4.8 marks 8 min
2 Loading adjustments 5 marks 9 min
3 Branch Account and profit 7 marks 13 min
4 Check and stock note 2 marks 4 min
Check: every adjustment used, both sides agree, dates in 2 min

1234

Try it first. About 38 minutes for 18.75 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 invoiced at a profit of 20% on sales, so the loading is 20% of invoice price. The branch account is prepared by the debtors method at invoice price, with the loading adjusted (paper note): a nominal Branch Account finds the branch profit, and stock reserve entries remove the loading from opening stock, net goods sent and closing stock.

Workings

Closing debtors = 27,000 + 1,05,000 − 1,800 returns − 2,700 discount − 75,000 = ₹52,500.
Cash remitted = cash sales 1,50,000 + cash from debtors 75,000 = ₹2,25,000; closing branch cash = 6,000 − petty expenses 4,200 = ₹1,800.
Furniture: 18,000 − 10% = ₹16,200.
Loading: opening stock 20% × 45,000 = 9,000; net goods sent 20% × 2,34,000 = 46,800; closing stock 20% × 21,000 = 4,200.

Branch Account (in the books of Kota Shoes Ltd.) for 2015

Dr	₹	Cr	₹
To Balance b/d: Stock (invoice price)	45,000	By Stock Reserve (loading on opening stock)	9,000
To Balance b/d: Debtors	27,000	By Goods sent to Branch (returns)	6,000
To Balance b/d: Cash	6,000	By Bank (cash remitted)	2,25,000
To Balance b/d: Furniture	18,000	By Goods sent to Branch (loading on net goods sent)	46,800
To Goods sent to Branch	2,40,000	By Balance c/d: Stock (invoice price)	21,000
To Bank: Rent	3,600	By Balance c/d: Debtors	52,500
To Bank: Salary	8,400	By Balance c/d: Cash	1,800
To Bank: Stationery	750	By Balance c/d: Furniture	16,200
To Stock Reserve (loading on closing stock)	4,200
To Net Profit (transferred to General P&L)	25,350
	3,78,300		3,78,300

Dr	₹
To Balance b/d: Stock (invoice price)	45,000
To Balance b/d: Debtors	27,000
To Balance b/d: Cash	6,000
To Balance b/d: Furniture	18,000
To Goods sent to Branch	2,40,000
To Bank: Rent	3,600
To Bank: Salary	8,400
To Bank: Stationery	750
To Stock Reserve (loading on closing stock)	4,200
To Net Profit (transferred to General P&L)	25,350
	3,78,300
Cr	₹
By Stock Reserve (loading on opening stock)	9,000
By Goods sent to Branch (returns)	6,000
By Bank (cash remitted)	2,25,000
By Goods sent to Branch (loading on net goods sent)	46,800
By Balance c/d: Stock (invoice price)	21,000
By Balance c/d: Debtors	52,500
By Balance c/d: Cash	1,800
By Balance c/d: Furniture	16,200
	3,78,300

Check (cost basis). Net sales 2,53,200 − cost of goods sold (45,000 + 2,34,000 − 21,000) × 80% = 2,06,400 gives gross profit ₹46,800; less head office expenses 12,750, petty expenses 4,200, discount 2,700 and depreciation 1,800 = ₹25,350.

Note. A memorandum stock account at invoice price expects closing stock of 45,000 + 2,34,000 − 2,55,000 + 1,800 = ₹25,800 against ₹21,000 counted: a shortage of ₹4,800 at invoice price. The debtors method takes the stock as counted, so the shortage is absorbed in the profit; it should be investigated.

Where the 18.75 marks sit

#	Component	Marks
1	Closing debtors, cash and furniture	4.75
2	Loading adjustments	5
3	Branch Account and profit	7
4	Check and stock note	2
	Total	18.75

Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question IDFAH20-Q5already filled in.