Question 4

Branch Accounts (Stock & Debtors System, invoice price)

18 marks

Time to write: About 36 minutes
Topic: Branch accounts
Notes: Crux notes

Question

Question 4 · 18 marks

Shivalik Traders Ltd. has two branches at Dehradun and Haldwani. Goods are invoiced to the branches at cost plus 50%, and goods are transferred by/to another branch at its cost. The following information is available about the Dehradun branch's transactions for the year ended 31st March, 2024:

Particulars	₹
Opening stock at its cost	5,76,720
Goods sent to branch (including goods invoiced at ₹ 32,400 to branch on 25th March, 2024 but not received by the branch till 31st March, 2024)	16,91,280
Goods received from Haldwani branch	12,960
Goods transferred to Haldwani branch	1,10,160
Goods returned by branch to H.O.	25,272
Goods returned by credit customers to branch	12,312
Goods returned by credit customers directly to H.O.	2,592
Agreed allowance to the customers off the selling price (already considered while invoicing)	2,160
Normal loss due to wastage and deterioration of the stock at cost to H.O.	2,160
Loss-in-transit (at invoice price) ₹ 14,256 against which a sum of ₹ 8,784 was received in full settlement of the claim from the insurance company
Cash sales ₹ 69,120 and credit sales ₹ 15,75,504
Branch expenses (including insurance charges) ₹ 1,08,000
Bad debts ₹ 2,160 and discount allowed to customers ₹ 1,080

The branch manager is entitled to a commission of 5% of the branch's profit after charging such commission.

Required: Assuming that the closing stock held at the branch at its cost as per physical verification came to ₹ 4,32,000, prepare the Branch Stock A/c, the Branch Adjustment A/c and the Branch P & L A/c.

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

36 minfor 18 marks

Read from the question

Assuming that the closing stock held…The paper fixes this: use it as given, and say so in your answer.

What the paper leaves open

"At its cost" (the opening stock, both transfers and the physical closing stock) is read as the branch's own cost, which is invoice price, so those figures are not grossed up; only the normal loss, stated at cost to the H.O., is.
The goods returned by the branch to the H.O. are taken at invoice price.
The goods invoiced but not received by the year end are goods in transit and part of the branch's closing stock.
The allowance "already considered while invoicing" means the sales are recorded net of it; it reduces the margin realised on goods carried at full invoice price.
The loss in transit is on goods sent to the branch, valued at invoice price, and is abnormal; so is the shortage the physical count reveals after the normal loss.

Write it in this order

Workings as you go: each statement feeds the next.

Read the data; note exactly what is asked 2 min
1 Reading "its cost" as invoice price; normal loss grossed up; loadings and costs WN1 2 marks 3 min
2 Branch Stock A/c, with transit stock and the shortage as balancing figure 6 marks 11 min
3 Branch Adjustment A/c stock reserves, losses, loading on net goods 5 marks 9 min
4 Branch P&L A/c abnormal losses, insurance, commission 4 marks 7 min
5 Commission after charging itself WN3 1 mark 2 min
Check: arithmetic, units (₹, %), final answer underlined 2 min

12345

Final answer

Check your own figures against these.

Shortage: ₹29,160 at IP (₹19,440 at cost)
Closing stock: ₹4,32,000 in hand + ₹32,400 in transit at IP (₹3,09,600 at cost)
Gross Profit: ₹5,39,640
Commission: ₹19,440
Net Profit: ₹3,88,800

Try it first. About 36 minutes for 18 marks. Write it out, then open the solution and check your figures against the final answer.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Price structure: cost 100 → invoice price 150. So invoice price (IP) = 1.5 × cost and the loading = one-third of IP (50 ÷ 150).

The convention, stated once

All entries follow the DU prescribed text's list of Stock & Debtors entries:

Branch Stock is kept at invoice price; because closing stock is therefore carried at invoice price, a stock reserve removes its loading (entries 14 and 15).
Opening stock, inter-branch transfers and the physical closing stock are given at the branch's own cost, which is invoice price, so they are posted as given, with no grossing up. Transfers pass through the Goods Sent to Branch Account: goods supplied to another branch are debited to Goods Sent to Branch and credited to Branch Stock (entry 2), and goods received from it the other way round.
Customer returns direct to the head office do not touch Branch Stock: Goods Sent to Branch A/c is debited and Branch Debtors credited.
Goods in transit (₹32,400 at IP) remain part of the branch's closing stock and are carried down separately as stock "in transit", with their own stock reserve.
Normal loss (₹2,160 at cost to the H.O. = ₹3,240 at IP) is charged at its full invoice price to Branch Adjustment, so it is absorbed in gross profit.
Abnormal losses (the loss in transit and the unexplained shortage revealed by the physical count) are split: loading to Branch Adjustment, cost to Branch Profit & Loss.
The allowance to customers (₹2,160) reduced what the branch realised on goods recorded at full invoice price, so Branch Stock is credited and Branch Adjustment debited with it.

Working notes

WN1Every figure at invoice price, and its loading

Item	As given	IP	Loading (⅓ of IP)	Cost (IP ÷ 1.5)
Opening stock	its cost = IP	5,76,720	1,92,240	3,84,480
Goods received from Haldwani	its cost = IP	12,960	4,320	8,640
Goods transferred to Haldwani	its cost = IP	1,10,160	36,720	73,440
Normal loss	cost to H.O. 2,160 × 1.5	3,240	1,080	2,160
Closing stock in hand (physical)	its cost = IP	4,32,000	1,44,000	2,88,000
Goods in transit	IP	32,400	10,800	21,600
Loss in transit	IP	14,256	4,752	9,504

WN2Goods Sent to Branch Account (invoice price)

Dr	₹	Cr	₹
To Branch Stock A/c (returns by the branch)	25,272	By Branch Stock A/c (goods sent by the H.O.)	16,91,280
To Branch Debtors A/c (customer returns direct to the H.O.)	2,592	By Branch Stock A/c (goods received from Haldwani)	12,960
To Branch Stock A/c (goods transferred to Haldwani)	1,10,160
To Branch Adjustment A/c (loading on net goods)	5,22,072
To Purchases / Trading A/c (cost of net goods)	10,44,144
	17,04,240		17,04,240

Dr	₹
To Branch Stock A/c (returns by the branch)	25,272
To Branch Debtors A/c (customer returns direct to the H.O.)	2,592
To Branch Stock A/c (goods transferred to Haldwani)	1,10,160
To Branch Adjustment A/c (loading on net goods)	5,22,072
To Purchases / Trading A/c (cost of net goods)	10,44,144
	17,04,240
Cr	₹
By Branch Stock A/c (goods sent by the H.O.)	16,91,280
By Branch Stock A/c (goods received from Haldwani)	12,960
	17,04,240

Net goods sent at IP = 16,91,280 + 12,960 − 25,272 − 2,592 − 1,10,160 = ₹15,66,216; loading ⅓ = ₹5,22,072; cost ₹10,44,144.

Stock reserve. The opening reserve of ₹1,92,240 is released to the Adjustment Account; the closing reserve is ₹1,44,000 on stock in hand plus ₹10,800 on goods in transit = ₹1,54,800, carried forward.

WN3Manager's commission (after charging itself)

Profit before commission = 5,48,424 − (1,08,000 + 2,160 + 1,080 + 9,504 + 19,440) = ₹4,08,240. Commission = 4,08,240 × 5 ÷ 105 = ₹19,440; net profit = ₹3,88,800, and 5% of ₹3,88,800 is ₹19,440 ✓.

Branch Stock Account (Dehradun) for the year ended 31 March 2024 (invoice price)

Dr	₹	Cr	₹
To Balance b/d (opening stock at IP)	5,76,720	By Branch Cash A/c (cash sales)	69,120
To Goods Sent to Branch A/c (from H.O.)	16,91,280	By Branch Debtors A/c (credit sales)	15,75,504
To Goods Sent to Branch A/c (from Haldwani, IP)	12,960	By Goods Sent to Branch A/c (returns to H.O.)	25,272
To Branch Debtors A/c (returns by customers)	12,312	By Goods Sent to Branch A/c (to Haldwani, IP)	1,10,160
		By Branch Adjustment A/c (allowance to customers)	2,160
		By Branch Adjustment A/c (normal loss, at IP)	3,240
		By Branch Adjustment A/c (loading on loss in transit)	4,752
		By Branch P&L A/c (loss in transit, at cost)	9,504
		By Branch Adjustment A/c (loading on shortage)	9,720
		By Branch P&L A/c (shortage, at cost)	19,440
		By Balance c/d (in hand, physical, at its cost = IP)	4,32,000
		By Balance c/d (in transit)	32,400
	22,93,272		22,93,272

Dr	₹
To Balance b/d (opening stock at IP)	5,76,720
To Goods Sent to Branch A/c (from H.O.)	16,91,280
To Goods Sent to Branch A/c (from Haldwani, IP)	12,960
To Branch Debtors A/c (returns by customers)	12,312
	22,93,272
Cr	₹
By Branch Cash A/c (cash sales)	69,120
By Branch Debtors A/c (credit sales)	15,75,504
By Goods Sent to Branch A/c (returns to H.O.)	25,272
By Goods Sent to Branch A/c (to Haldwani, IP)	1,10,160
By Branch Adjustment A/c (allowance to customers)	2,160
By Branch Adjustment A/c (normal loss, at IP)	3,240
By Branch Adjustment A/c (loading on loss in transit)	4,752
By Branch P&L A/c (loss in transit, at cost)	9,504
By Branch Adjustment A/c (loading on shortage)	9,720
By Branch P&L A/c (shortage, at cost)	19,440
By Balance c/d (in hand, physical, at its cost = IP)	4,32,000
By Balance c/d (in transit)	32,400
	22,93,272

The shortage is the balancing figure. Before it, the credits total ₹22,64,112 against debits of ₹22,93,272, so goods worth ₹29,160 at IP are unaccounted for: ₹9,720 loading and ₹19,440 at cost. The normal loss has already been recorded separately, so this residue is treated as abnormal.

Branch Adjustment Account (loading = ⅓ of IP)

Dr	₹	Cr	₹
To Stock Reserve A/c (closing stock in hand, 4,32,000 ÷ 3)	1,44,000	By Stock Reserve A/c (opening stock, 5,76,720 ÷ 3)	1,92,240
To Stock Reserve A/c (goods in transit, 32,400 ÷ 3)	10,800	By Goods Sent to Branch A/c (loading on net goods, 15,66,216 ÷ 3, WN2)	5,22,072
To Branch Stock A/c (allowance to customers)	2,160
To Branch Stock A/c (normal loss, at IP)	3,240
To Branch Stock A/c (loading on loss in transit)	4,752
To Branch Stock A/c (loading on shortage)	9,720
To Gross Profit c/d → Branch P&L A/c	5,39,640
	7,14,312		7,14,312

Dr	₹
To Stock Reserve A/c (closing stock in hand, 4,32,000 ÷ 3)	1,44,000
To Stock Reserve A/c (goods in transit, 32,400 ÷ 3)	10,800
To Branch Stock A/c (allowance to customers)	2,160
To Branch Stock A/c (normal loss, at IP)	3,240
To Branch Stock A/c (loading on loss in transit)	4,752
To Branch Stock A/c (loading on shortage)	9,720
To Gross Profit c/d → Branch P&L A/c	5,39,640
	7,14,312
Cr	₹
By Stock Reserve A/c (opening stock, 5,76,720 ÷ 3)	1,92,240
By Goods Sent to Branch A/c (loading on net goods, 15,66,216 ÷ 3, WN2)	5,22,072
	7,14,312

Branch Profit & Loss Account (Dehradun) for the year ended 31 March 2024

Dr	₹	Cr	₹
To Branch Expenses (including insurance)	1,08,000	By Gross Profit b/d (Branch Adjustment A/c)	5,39,640
To Bad Debts	2,160	By Insurance claim settled (loss in transit)	8,784
To Discount Allowed	1,080
To Loss in Transit (at cost)	9,504
To Shortage of Stock (at cost)	19,440
To Branch Manager's Commission (WN3)	19,440
To Net Profit → General P&L A/c	3,88,800
	5,48,424		5,48,424

Dr	₹
To Branch Expenses (including insurance)	1,08,000
To Bad Debts	2,160
To Discount Allowed	1,080
To Loss in Transit (at cost)	9,504
To Shortage of Stock (at cost)	19,440
To Branch Manager's Commission (WN3)	19,440
To Net Profit → General P&L A/c	3,88,800
	5,48,424
Cr	₹
By Gross Profit b/d (Branch Adjustment A/c)	5,39,640
By Insurance claim settled (loss in transit)	8,784
	5,48,424

The loss in transit therefore costs the branch a net ₹720 (cost ₹9,504 less the ₹8,784 settlement); its ₹4,752 loading was never profit and is reversed in the Adjustment Account.

Proof: independent cost-basis trading account

Every figure at cost, with no loading and no reserve. Net sales = 69,120 + 15,75,504 − 12,312 − 2,592.

Dr	₹	Cr	₹
To Opening Stock (at cost, 5,76,720 ÷ 1.5)	3,84,480	By Net Sales	16,29,720
To Net Goods from H.O. and Haldwani (at cost, WN2)	10,44,144	By Closing Stock at cost (2,88,000 in hand + 21,600 in transit)	3,09,600
To Gross Profit	5,39,640	By Loss in Transit (at cost)	9,504
		By Shortage (at cost)	19,440
	19,68,264		19,68,264

Dr	₹
To Opening Stock (at cost, 5,76,720 ÷ 1.5)	3,84,480
To Net Goods from H.O. and Haldwani (at cost, WN2)	10,44,144
To Gross Profit	5,39,640
	19,68,264
Cr	₹
By Net Sales	16,29,720
By Closing Stock at cost (2,88,000 in hand + 21,600 in transit)	3,09,600
By Loss in Transit (at cost)	9,504
By Shortage (at cost)	19,440
	19,68,264

The cost-basis gross profit equals the Branch Adjustment balancing figure exactly, with zero residual.

The other reading of "at its cost". If "its cost" meant the head office's cost, the opening stock, both transfers and the physical closing stock would first be grossed up by 1.5. The shortage would be ₹52,920 at IP, gross profit the same ₹5,39,640, commission ₹18,685.71 and net profit ₹3,73,714.29, a result in paise against the whole-rupee figures above.

Result: shortage ₹29,160 at IP (₹19,440 at cost) · closing stock ₹4,32,000 in hand + ₹32,400 in transit at IP (₹3,09,600 at cost) · Gross Profit ₹5,39,640 · commission ₹19,440 · Net Profit ₹3,88,800.

Where the 18 marks sit

#	Component	Marks
1	Reading "its cost" as invoice price; normal loss grossed up; loadings and costs (WN1)	2
2	Branch Stock A/c, with transit stock and the shortage as balancing figure	6
3	Branch Adjustment A/c (stock reserves, losses, loading on net goods → GP 5,39,640)	5
4	Branch P&L A/c (abnormal losses, insurance, commission → NP 3,88,800)	4
5	Commission after charging itself (WN3)	1
	Total	18

Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID206-Q4already filled in.