Question 4 OR
Stock & Debtors System
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 OR · 18 marksGanga Textiles Ltd. Kolkata invoiced goods to its Nagpur branch office at 20% below the list price, which is cost plus 50%, and instructed that cash sales be made at invoice price and credit sales at list price. Nagpur Branch related information is given as follows:
| Opening stock at Nagpur at its cost | ₹2,16,000 |
| Goods sent to Nagpur (at cost to Kolkata) | ₹ 2,64,000 |
| Cash sales 60 % of net credit sales | |
| Goods returned by the credit customers to Nagpur | ₹ 90,000 |
| Goods returned by Nagpur to Kolkata | ₹1,00,800 |
| Loss of goods at Nagpur through normal pilferage (at list price) | ₹ 7,200 |
| Loss of goods by fire (at invoice price); 80% of the cost was recovered from the insurance company by Nagpur branch. | ₹ 7,200 |
| Opening balance of debtors | ₹ 24,000 |
| Closing balance of debtors | ₹ 54,000 |
| Discount allowed to Nagpur branch credit customers | ₹ 32,400 |
| Provision to be made for a discount on debtors | ₹ 7,290 |
| Goods received by Nagpur branch till the end of the year | ₹ 3,02,400 |
| Cash remitted by credit customers to Nagpur branch | ₹ 2,07,600 |
| Nagpur Branch expenses paid by Kolkata H.O. (Including the insurance premium of 4,800 paid for the year ending 30th June 2025.) | ₹22,800 |
| Outstanding Nagpur branch expenses | ₹ 4,350 |
| The manager is entitled to a commission @ 5% of the net profit after charging such commissions. Round the commission off to the nearest rupee. |
Required: Nagpur Branch stock account, Nagpur Branch debtors account, Nagpur Branch adjustment account, Nagpur Branch expenses account and, Nagpur Branch profit and loss account and the Goods sent to branch account, under the stock and debtor system of branch accounting, for the year that ended 31st March 2025.
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
What the paper leaves open
- "Opening stock at Nagpur at its cost" is read as the branch's own cost, which is invoice price.
- Invoice price is 80% of list price and list price is cost plus 50%, so invoice price is 1.2 times cost.
- The pilferage is normal (it is called "normal"); valued at list price, it is converted to invoice price and charged in full to Branch Adjustment. The fire loss is abnormal; 80% of its cost recovered from the insurer is credited to Branch Profit and Loss.
- Goods sent but not yet received by the year end are goods in transit.
- The insurance premium covers the year to 30th June 2025, so a quarter of it is prepaid at 31st March 2025.
- Credit sales and customer returns are at list price; cash sales are at invoice price.
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 Branch Debtors A/c 3 marks 5 min
- 2 Branch Stock A/c 4 marks 7 min
- 3 Branch Adjustment A/c 4 marks 7 min
- 4 Branch Expenses A/c prepaid/outstanding 2 marks 4 min
- 5 Branch P&L A/c losses, provision, commission 4 marks 7 min
- 6 Goods Sent to Branch A/c transit 1 mark 2 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Final answer
Check your own figures against these.
- Credit sales
- ₹3,60,000
- Cash sales
- ₹1,62,000
- Closing stock
- ₹26,640
- IP) / ₹22,200 (cost
- Goods in transit
- ₹14,400
- Gross Profit
- ₹1,12,200
- Net Profit
- ₹43,200
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 → list = 150 → invoice price (IP) = 150 − 20% = 120. So IP = 1.2 × cost, list = 1.5 × cost, loading = IP ÷ 6 (20% on cost) and IP = 0.8 × list. Goods received, goods returned to the head office and the fire loss are at invoice price, the basis of the Branch Stock account; customer returns are at list price, because they reverse credit sales made at list price.
"At its cost": the other reading. The opening stock is taken at the branch's own cost, which is invoice price: the DU text's tutorial notes treat stock "at cost to branch" or "at its cost" as stock at invoice price. If "its cost" meant the head office's cost, the opening stock would be grossed up to ₹2,59,200 (reserve ₹43,200). Closing stock is this question's balancing figure, so it would rise by the same ₹43,200 to ₹69,840 at IP (₹58,200 at cost), with a closing reserve of ₹11,640. Gross profit (₹1,12,200), commission (₹2,160) and net profit (₹43,200) are the same under both readings.
Working notes
WN1Branch Debtors Account (list price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 24,000 | By Bank (cash remitted) | 2,07,600 |
| To Branch Stock (credit sales, list) | 3,60,000 | By Branch Stock (sales returns) | 90,000 |
| By Discount Allowed A/c | 32,400 | ||
| By Balance c/d | 54,000 | ||
| 3,84,000 | 3,84,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 24,000 |
| To Branch Stock (credit sales, list) | 3,60,000 |
| 3,84,000 | |
| Cr | ₹ |
| By Bank (cash remitted) | 2,07,600 |
| By Branch Stock (sales returns) | 90,000 |
| By Discount Allowed A/c | 32,400 |
| By Balance c/d | 54,000 |
| 3,84,000 |
→ Credit sales (list) = ₹3,60,000 (the balancing figure). Net credit sales = 3,60,000 − 90,000 = ₹2,70,000; cash sales (IP) = 60% × 2,70,000 = ₹1,62,000.
WN2Branch Stock Account (invoice price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d (opening, at its cost = IP) | 2,16,000 | By Bank (cash sales, IP) | 1,62,000 |
| To Goods Sent to Branch (received) | 3,02,400 | By Branch Debtors (credit sales at IP = 3,60,000 × 0.8) | 2,88,000 |
| To Branch Debtors (sales returns, IP = 90,000 × 0.8) | 72,000 | By Goods Sent to Branch (returns to H.O.) | 1,00,800 |
| By Branch Adjustment (normal pilferage, full IP = 7,200 × 0.8) | 5,760 | ||
| By Branch Adjustment (loading on fire loss) | 1,200 | ||
| By Branch P&L (fire loss, cost) | 6,000 | ||
| By Balance c/d (closing stock, IP) | 26,640 | ||
| 5,90,400 | 5,90,400 |
| Dr | ₹ |
|---|---|
| To Balance b/d (opening, at its cost = IP) | 2,16,000 |
| To Goods Sent to Branch (received) | 3,02,400 |
| To Branch Debtors (sales returns, IP = 90,000 × 0.8) | 72,000 |
| 5,90,400 | |
| Cr | ₹ |
| By Bank (cash sales, IP) | 1,62,000 |
| By Branch Debtors (credit sales at IP = 3,60,000 × 0.8) | 2,88,000 |
| By Goods Sent to Branch (returns to H.O.) | 1,00,800 |
| By Branch Adjustment (normal pilferage, full IP = 7,200 × 0.8) | 5,760 |
| By Branch Adjustment (loading on fire loss) | 1,200 |
| By Branch P&L (fire loss, cost) | 6,000 |
| By Balance c/d (closing stock, IP) | 26,640 |
| 5,90,400 |
Key point: customers are billed at list (₹3,60,000) but the stock is relieved at invoice price (₹2,88,000). The excess on net credit sales, ₹54,000 (20% of ₹2,70,000), is carried to the Branch Adjustment A/c as extra gross profit. Closing stock ₹26,640 (IP) = ₹22,200 at cost.
Normal and abnormal loss. The pilferage is normal, so its full invoice price (₹5,760) is charged to the Branch Adjustment A/c and absorbed in gross profit; nothing goes to Branch P&L. The fire is abnormal, so it is split: loading ₹1,200 to Branch Adjustment, cost ₹6,000 to Branch P&L, where the insurance recovery is credited. These are the DU text's journal entries 11 and 10: a normal loss arising from the nature of the product debits Branch Adjustment with its invoice price; an abnormal loss debits Branch Adjustment with the loading and Branch Profit and Loss with the cost.
WN3Branch Adjustment Account (loading = ⅙ of IP)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Stock Reserve (loading on closing stock, 26,640 ÷ 6) | 4,440 | By Stock Reserve (loading on opening stock, 2,16,000 ÷ 6) | 36,000 |
| To Stock Reserve (loading on goods in transit, 14,400 ÷ 6) | 2,400 | By Goods Sent to Branch (loading on net goods sent, 2,16,000 ÷ 6) | 36,000 |
| To Branch Stock (normal pilferage, full invoice price) | 5,760 | By Branch Stock (surplus: list over invoice) | 54,000 |
| To Branch Stock (loading on abnormal fire loss) | 1,200 | ||
| To Gross Profit c/d → Branch P&L | 1,12,200 | ||
| 1,26,000 | 1,26,000 |
| Dr | ₹ |
|---|---|
| To Stock Reserve (loading on closing stock, 26,640 ÷ 6) | 4,440 |
| To Stock Reserve (loading on goods in transit, 14,400 ÷ 6) | 2,400 |
| To Branch Stock (normal pilferage, full invoice price) | 5,760 |
| To Branch Stock (loading on abnormal fire loss) | 1,200 |
| To Gross Profit c/d → Branch P&L | 1,12,200 |
| 1,26,000 | |
| Cr | ₹ |
| By Stock Reserve (loading on opening stock, 2,16,000 ÷ 6) | 36,000 |
| By Goods Sent to Branch (loading on net goods sent, 2,16,000 ÷ 6) | 36,000 |
| By Branch Stock (surplus: list over invoice) | 54,000 |
| 1,26,000 |
WN4Branch Expenses Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Bank (paid by H.O.) | 22,800 | By Balance c/d (prepaid insurance) | 1,200 |
| To Balance c/d (outstanding expenses) | 4,350 | By Branch P&L A/c (transferred) | 25,950 |
| 27,150 | 27,150 |
| Dr | ₹ |
|---|---|
| To Bank (paid by H.O.) | 22,800 |
| To Balance c/d (outstanding expenses) | 4,350 |
| 27,150 | |
| Cr | ₹ |
| By Balance c/d (prepaid insurance) | 1,200 |
| By Branch P&L A/c (transferred) | 25,950 |
| 27,150 |
Prepaid insurance = ₹4,800 × 3/12 = ₹1,200 (April to June 2025, beyond the 31 March 2025 year end).
WN5Goods Sent to Branch Account (invoice price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Branch Stock (returns to H.O.) | 1,00,800 | By Branch Stock (goods received) | 3,02,400 |
| To Branch Adjustment (loading on net goods sent) | 36,000 | By Balance c/d (goods in transit) | 14,400 |
| To Purchases / H.O. Trading A/c (cost of net goods) | 1,80,000 | ||
| 3,16,800 | 3,16,800 |
| Dr | ₹ |
|---|---|
| To Branch Stock (returns to H.O.) | 1,00,800 |
| To Branch Adjustment (loading on net goods sent) | 36,000 |
| To Purchases / H.O. Trading A/c (cost of net goods) | 1,80,000 |
| 3,16,800 | |
| Cr | ₹ |
| By Branch Stock (goods received) | 3,02,400 |
| By Balance c/d (goods in transit) | 14,400 |
| 3,16,800 |
Goods dispatched at IP = 2,64,000 × 1.2 = ₹3,16,800; in transit = 3,16,800 − 3,02,400 = ₹14,400.
Nagpur Branch Profit & Loss Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Branch Expenses A/c | 25,950 | By Gross Profit b/d (Branch Adjustment) | 1,12,200 |
| To Discount Allowed | 32,400 | ||
| To Provision for Discount on Debtors | 7,290 | ||
| To Abnormal Loss by Fire (₹6,000 − ₹4,800 insurance claim) | 1,200 | ||
| To Manager's Commission (5% of N.P. after charging) | 2,160 | ||
| To Net Profit → H.O. General P&L | 43,200 | ||
| 1,12,200 | 1,12,200 |
| Dr | ₹ |
|---|---|
| To Branch Expenses A/c | 25,950 |
| To Discount Allowed | 32,400 |
| To Provision for Discount on Debtors | 7,290 |
| To Abnormal Loss by Fire (₹6,000 − ₹4,800 insurance claim) | 1,200 |
| To Manager's Commission (5% of N.P. after charging) | 2,160 |
| To Net Profit → H.O. General P&L | 43,200 |
| 1,12,200 | |
| Cr | ₹ |
| By Gross Profit b/d (Branch Adjustment) | 1,12,200 |
| 1,12,200 |
Manager's commission = 45,360 × 5/105 = ₹2,160, already a whole rupee, so the rounding instruction changes nothing; Net Profit = ₹43,200 (and 5% of ₹43,200 is ₹2,160 ✓). The insurance claim is 80% of the fire loss at cost (₹6,000), ₹4,800.
Result: Credit sales ₹3,60,000 · Cash sales ₹1,62,000 · Closing stock ₹26,640 (IP) / ₹22,200 (cost) · Goods in transit ₹14,400 · Gross Profit ₹1,12,200 · Net Profit ₹43,200.
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Branch Debtors A/c (→ credit sales 3,60,000) | 3 |
| 2 | Branch Stock A/c (→ closing stock 26,640) | 4 |
| 3 | Branch Adjustment A/c (→ gross profit 1,12,200) | 4 |
| 4 | Branch Expenses A/c (prepaid/outstanding) | 2 |
| 5 | Branch P&L A/c (losses, provision, commission → NP 43,200) | 4 |
| 6 | Goods Sent to Branch A/c (transit) | 1 |
| Total | 18 |
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