Question 4

Branch Account in the head office books (Debtors System)

18.33 marks

Time to write
About 37 minutes

From an older CBCS paper

Question

Question 4 · 18.33 marks

Q.4. Vipul 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 necessaries for its immediate cash requirements. The branch assets as on 31st March, 2020 were:

AssetsRs.
Cash in Hand12,000
Trade Debtors4,60,800
Stock at Invoice Price12,96,000
Furniture and Fittings6,00,000

In the accounting year ended 31st March, 2021, goods that the head office dispatched to the branch amounted to Rs. 1,58,40,000 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:

ParticularsRs.
Cash Sales1,16,40,000
Credit Sales37,68,000
Cash collected by Branch from Credit Customers34,10,400
Returns by customers1,22,400
Discount allowed69,600
Bad debts written off44,400
Expenses paid by branch10,10,400

On 1st Jan, 2021 the branch bought new furniture for Rs. 1,20,000, for which head office made the payments by cheque. On 31st March, 2020, branch expenses of Rs. 7,200 were outstanding, and cash in hand was again Rs. 12,000. Furniture is subject to depreciation @ 16% p.a.

For the year ended 31st March, 2021, prepare the Branch Account in the books of Head Office. [18.33 Marks]

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

37 minfor 18.3 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

  1. "Withholding, Rs. 12,000 necessaries" is kept as printed.
  2. The closing stock at the branch is not given; the answer derives it from the stock account at invoice price and states this.
  3. "On 31st March, 2020, branch expenses... outstanding" repeats the opening date; it is read as 31st March, 2021, the year end.
  4. The branch account is prepared at invoice price with the loading adjusted.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 2 min
  2. 1 Closing stock, debtors and cash remitted 5 marks 9 min
  3. 2 Furniture and depreciation 3 marks 6 min
  4. 3 Loading adjustments 4 marks 7 min
  5. 4 Branch Account and profit 6.3 marks 11 min
  6. Check: every adjustment used, both sides agree, dates in 2 min

Try it first. About 37 minutes for 18.33 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. The outstanding expenses "on 31st March, 2020" are read as at 31 March 2021, the year end (paper note). 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

ItemWorking₹
Closing stock at invoice price (paper note)12,96,000 + 1,58,40,000 − 86,400 − 1,16,40,000 − 37,68,000 + 1,22,40017,64,000
Closing debtors4,60,800 + 37,68,000 − 34,10,400 − 1,22,400 − 69,600 − 44,4005,82,000
Cash remitted to H.O.12,000 + 1,16,40,000 + 34,10,400 − 10,10,400 − 12,0001,40,40,000
Depreciation on furniture16% × 6,00,000 + 16% × 1,20,000 × 3/121,00,800
Closing furniture6,00,000 + 1,20,000 − 1,00,8006,19,200
Loading: opening stock / net goods sent / closing stock1/6 × 12,96,000; 1/6 × 1,57,53,600; 1/6 × 17,64,0002,16,000 / 26,25,600 / 2,94,000

Branch Account for the year ended 31 March 2021

Dr₹Cr₹
To Balance b/d: Cash12,000By Stock Reserve (loading on opening stock)2,16,000
To Balance b/d: Debtors4,60,800By Goods sent to Branch (returns)86,400
To Balance b/d: Stock (invoice price)12,96,000By Bank (cash remitted)1,40,40,000
To Balance b/d: Furniture6,00,000By Goods sent to Branch (loading on net goods sent)26,25,600
To Goods sent to Branch (invoice price)1,58,40,000By Balance c/d: Cash12,000
To Bank (new furniture)1,20,000By Balance c/d: Debtors5,82,000
To Stock Reserve (loading on closing stock)2,94,000By Balance c/d: Stock (invoice price)17,64,000
To Balance c/d: Outstanding expenses7,200By Balance c/d: Furniture6,19,200
To Net Profit (transferred to General P&L)13,15,200
1,99,45,2001,99,45,200
Dr₹
To Balance b/d: Cash12,000
To Balance b/d: Debtors4,60,800
To Balance b/d: Stock (invoice price)12,96,000
To Balance b/d: Furniture6,00,000
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 expenses7,200
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: Cash12,000
By Balance c/d: Debtors5,82,000
By Balance c/d: Stock (invoice price)17,64,000
By Balance c/d: Furniture6,19,200
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 18.33 marks sit

#ComponentMarks
1Closing stock, debtors and cash remitted5
2Furniture and depreciation3
3Loading adjustments4
4Branch Account and profit6.33
Total18.33
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