Question 4

Branch Account (Debtor System, invoice price)

18 marks

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

Question

Question 4 · 18 marks

Konark Traders Ltd. Opened branch shops at Surat and Rajkot. Goods are invoiced to the branches at a profit of 50% on cost. This information relates to Surat branch for the year ending on 31st March, 2025.

Balances as on April 1, 2024:	Amount ₹
Stock (at cost to H.O.)	66,000
Debtors	12,000
Petty Cash	1,200
Furniture	24,000
Goods received by branch at selling price from H.O.	2,04,000
Credit Sales	90,000
Cash Sales	1,20,000
Transfer from Rajkot to Surat branch at selling price	15,000
Transfer from Surat to Rajkot branch at selling price	30,000
Goods returned by branch to H.O. at selling price	9,000
Cash received from debtors	66,000
Bad debts written off	3,000
Petty expenses paid by branch	700
Goods returned by debtors to the branch	6,000
Goods returned by debtors directly to H.O.	12,000
Goods purchased by branch from local suppliers costing ₹ 21,000; payment made by H.O.
Cash sent to the branch for expenses	12,000
Balances as on 31st March, 2025
Stock	?
Debtors	?
Petty cash	500

Additional Information:

Goods amounting to ₹18,000 at selling price were in transit from H.O. to Surat branch.
Depreciation is to be provided on furniture at 10% p.a.
Goods bought from local suppliers were sold at a 50% profit on cost, and none of these goods were left in stock on March, 2025.

Prepare: Surat Branch account under the debtor system of branch accounting. As part of the working notes, also show the memorandum accounts, such as the Branch stock account, the Branch debtors account, Goods sent to branch and the stock reserve account.

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

Prepare: Surat Branch accountDraw the format first (heading, columns, dates), then fill in the figures from your working.

What the paper leaves open

The opening stock is "at cost to H.O." and is grossed up to selling price; the local purchases are at cost, as printed; the other branch figures are at selling price.
The goods in transit were sent by the head office and not yet received; they are added to the branch's closing stock.
The goods bought locally were all sold within the year, so their sales are inside the cash and credit sales given.
Debtors' returns reduce sales; those made directly to the head office never re-enter branch stock.

Write it in this order

Workings as you go: each statement feeds the next.

Read the data; tick every adjustment as you plan it 2 min
1 Memorandum Branch Debtors A/c 3 marks 5 min
2 Memorandum Branch Stock A/c 3 marks 5 min
3 Goods Sent to Branch A/c + Stock Reserve A/c 3 marks 5 min
4 Branch Account with loading/stock-reserve entries 7 marks 13 min
5 Branch Cash / remittance and closing-figure workings 2 marks 4 min
Check: every adjustment used, both sides agree, dates in 2 min

12345

Final answer

Check your own figures against these.

Closing debtors: ₹15,000
Closing stock: ₹1,24,500; SP) / ₹83,000 (cost
Remittance to H.O.: ₹1,86,000
Net Profit: ₹45,900; proved on the invoice-price Branch Account and again on the cost basis

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.

One committed convention (net-sales basis)

This problem mixes an opening stock stated at cost to the H.O. with every other figure at selling price, and adds inter-branch transfers, two kinds of debtor return and a block of local purchases. A single, internally consistent convention resolves it cleanly:

Opening stock is read at cost (as the paper states), so its invoice price is 66,000 × 1.5 = 99,000.
Debtor returns reduce sales (net-sales basis). Goods returned to the branch re-enter branch stock; goods returned direct to the H.O. reduce the net goods for which the branch is accountable. This is the standard treatment of a sales return and it leaves no gross/net residual: the profit is identical whether struck on the Branch Account or on an independent cost-basis Trading account.
Local goods (₹21,000 at cost, no loading) are sold within the recorded total sales and contribute their own margin.
Inter-branch transfers are recorded at invoice price and their loading neutralised, exactly as goods sent to / returned from another branch are treated.
Cash sent for expenses (₹12,000) is fully spent; petty cash reconciles on its own (1,200 − 700 = 500).

Because the loading is neutralised through explicit stock-reserve entries, the answer commits to one convention and proves the profit two independent ways rather than presenting a range.

Working notes

WN1Memorandum Branch Debtors Account (foots ✓)

Dr	₹	Cr	₹
To Balance b/d	12,000	By Bank (cash received)	66,000
To Branch Stock (credit sales)	90,000	By Bad Debts	3,000
		By Branch Stock (returns to branch)	6,000
		By Goods Sent to Branch (returns direct to H.O.)	12,000
		By Balance c/d (closing debtors)	15,000
	1,02,000		1,02,000

Dr	₹
To Balance b/d	12,000
To Branch Stock (credit sales)	90,000
	1,02,000
Cr	₹
By Bank (cash received)	66,000
By Bad Debts	3,000
By Branch Stock (returns to branch)	6,000
By Goods Sent to Branch (returns direct to H.O.)	12,000
By Balance c/d (closing debtors)	15,000
	1,02,000

WN2Memorandum Branch Stock Account (invoice price; H.O.-invoiced goods only: foots ✓)

Dr	₹	Cr	₹
To Balance b/d (opening, IP = 66,000×1.5)	99,000	By Bank & Debtors (sales of H.O. goods, SP)	1,78,500
To Goods Sent to Branch (received)	2,04,000	By Rajkot Branch (transfer out)	30,000
To Rajkot Branch (transfer in)	15,000	By Goods Sent to Branch (returns to H.O.)	9,000
To Branch Debtors (returns to branch)	6,000	By Balance c/d (closing stock at branch)	1,06,500
	3,24,000		3,24,000

Dr	₹
To Balance b/d (opening, IP = 66,000×1.5)	99,000
To Goods Sent to Branch (received)	2,04,000
To Rajkot Branch (transfer in)	15,000
To Branch Debtors (returns to branch)	6,000
	3,24,000
Cr	₹
By Bank & Debtors (sales of H.O. goods, SP)	1,78,500
By Rajkot Branch (transfer out)	30,000
By Goods Sent to Branch (returns to H.O.)	9,000
By Balance c/d (closing stock at branch)	1,06,500
	3,24,000

Sales of H.O. goods (SP) = total sales 2,10,000 − local-goods sales 31,500 = ₹1,78,500 (gross; delivered to customers). The 12,000 of goods returned by debtors directly to the H.O. left the branch inside those sales and never re-entered branch stock, so they appear in the Debtors and Goods-Sent accounts, not here. Closing stock at branch ₹1,06,500 + goods in transit ₹18,000 = ₹1,24,500 (SP) = ₹83,000 at cost.

WN3Memorandum Branch Cash Account (foots ✓)

Dr	₹	Cr	₹
To Balance b/d (petty cash)	1,200	By Branch expenses (12,000 + petty 700)	12,700
To Cash Sales	1,20,000	By Bank: remittance to H.O.	1,86,000
To Branch Debtors (received)	66,000	By Balance c/d (petty cash)	500
To Bank (cash sent by H.O. for expenses)	12,000
	1,99,200		1,99,200

Dr	₹
To Balance b/d (petty cash)	1,200
To Cash Sales	1,20,000
To Branch Debtors (received)	66,000
To Bank (cash sent by H.O. for expenses)	12,000
	1,99,200
Cr	₹
By Branch expenses (12,000 + petty 700)	12,700
By Bank: remittance to H.O.	1,86,000
By Balance c/d (petty cash)	500
	1,99,200

Remittance to H.O. = cash sales 1,20,000 + collections 66,000 = ₹1,86,000.

WN4Goods Sent to Branch Account (invoice price: foots ✓)

Dr	₹	Cr	₹
To Branch Stock (returns to H.O. by branch)	9,000	By Branch Stock (goods received)	2,04,000
To Branch Debtors (debtor returns direct to H.O.)	12,000	By Branch Stock (goods in transit)	18,000
To Stock Reserve (loading on net goods, 2,01,000÷3)	67,000
To Purchases / Trading A/c (cost of net goods)	1,34,000
	2,22,000		2,22,000

Dr	₹
To Branch Stock (returns to H.O. by branch)	9,000
To Branch Debtors (debtor returns direct to H.O.)	12,000
To Stock Reserve (loading on net goods, 2,01,000÷3)	67,000
To Purchases / Trading A/c (cost of net goods)	1,34,000
	2,22,000
Cr	₹
By Branch Stock (goods received)	2,04,000
By Branch Stock (goods in transit)	18,000
	2,22,000

WN5Stock Reserve Account (memorandum: foots ✓)

Dr	₹	Cr	₹
To Balance c/d (closing reserve, 1,24,500 ÷ 3)	41,500	By Balance b/d (opening reserve, 99,000 ÷ 3)	33,000
		By General P&L A/c (additional reserve)	8,500
	41,500		41,500

Dr	₹
To Balance c/d (closing reserve, 1,24,500 ÷ 3)	41,500
	41,500
Cr	₹
By Balance b/d (opening reserve, 99,000 ÷ 3)	33,000
By General P&L A/c (additional reserve)	8,500
	41,500

Surat Branch Account (Debtor System) for the year ended 31 March 2025 (invoice price: foots ✓)

Under the Debtor System the H.O. keeps one nominal Branch Account per dependent branch to disclose the branch profit. Goods are held at invoice price and the loading is removed through the goods-sent-loading and stock-reserve entries, so the balancing figure is the true (cost-basis) profit.

Dr	₹	Cr	₹
To Opening Stock (IP)	99,000	By Stock Reserve (loading on opening stock)	33,000
To Opening Debtors	12,000	By Goods Sent to Branch (returns to H.O., IP)	21,000
To Opening Petty Cash	1,200	By Goods Sent to Branch (loading on net goods)	67,000
To Opening Furniture	24,000	By Rajkot Branch (transfer out, IP)	30,000
To Goods Sent to Branch (IP, incl. transit)	2,22,000	By Rajkot Branch (loading on transfer in)	5,000
To Rajkot Branch (transfer in, IP)	15,000	By Bank (remittance from branch)	1,86,000
To Bank (cash sent for expenses)	12,000	By Closing Stock at branch (IP)	1,06,500
To Local Purchases (cost)	21,000	By Goods in Transit (IP)	18,000
To Stock Reserve (loading on closing stock)	41,500	By Closing Debtors	15,000
To Rajkot Branch (loading on transfer out)	10,000	By Closing Petty Cash	500
To Net Profit → General P&L	45,900	By Closing Furniture (24,000 − 2,400)	21,600
	5,03,600		5,03,600

Dr	₹
To Opening Stock (IP)	99,000
To Opening Debtors	12,000
To Opening Petty Cash	1,200
To Opening Furniture	24,000
To Goods Sent to Branch (IP, incl. transit)	2,22,000
To Rajkot Branch (transfer in, IP)	15,000
To Bank (cash sent for expenses)	12,000
To Local Purchases (cost)	21,000
To Stock Reserve (loading on closing stock)	41,500
To Rajkot Branch (loading on transfer out)	10,000
To Net Profit → General P&L	45,900
	5,03,600
Cr	₹
By Stock Reserve (loading on opening stock)	33,000
By Goods Sent to Branch (returns to H.O., IP)	21,000
By Goods Sent to Branch (loading on net goods)	67,000
By Rajkot Branch (transfer out, IP)	30,000
By Rajkot Branch (loading on transfer in)	5,000
By Bank (remittance from branch)	1,86,000
By Closing Stock at branch (IP)	1,06,500
By Goods in Transit (IP)	18,000
By Closing Debtors	15,000
By Closing Petty Cash	500
By Closing Furniture (24,000 − 2,400)	21,600
	5,03,600

The two "returns to H.O." (branch returns ₹9,000 + debtor returns direct ₹12,000 = ₹21,000) and the inter-branch transfers are shown at invoice price with their loading neutralised, so the account works through to cost. Net Profit ₹45,900.

Proof: independent cost-basis Branch Trading & P&L (foots ✓)

Every figure is restated at cost; the gross profit and net profit reproduce the Branch Account exactly.

Trading section

Dr	₹	Cr	₹
To Opening Stock (cost)	66,000	By Sales (net)	1,92,000
To Goods Sent by H.O. (cost, net)	1,34,000	By Goods transferred to Rajkot (cost)	20,000
To Goods received from Rajkot (cost)	10,000	By Closing Stock (cost, incl. transit)	83,000
To Local Purchases (cost)	21,000
To Gross Profit c/d	64,000
	2,95,000		2,95,000

Dr	₹
To Opening Stock (cost)	66,000
To Goods Sent by H.O. (cost, net)	1,34,000
To Goods received from Rajkot (cost)	10,000
To Local Purchases (cost)	21,000
To Gross Profit c/d	64,000
	2,95,000
Cr	₹
By Sales (net)	1,92,000
By Goods transferred to Rajkot (cost)	20,000
By Closing Stock (cost, incl. transit)	83,000
	2,95,000

Profit & Loss section

Dr	₹	Cr	₹
To Branch Expenses	12,700	By Gross Profit b/d	64,000
To Depreciation (furniture)	2,400
To Bad Debts	3,000
To Net Profit	45,900
	64,000		64,000

Dr	₹
To Branch Expenses	12,700
To Depreciation (furniture)	2,400
To Bad Debts	3,000
To Net Profit	45,900
	64,000
Cr	₹
By Gross Profit b/d	64,000
	64,000

Net sales = 2,10,000 − returns to branch 6,000 − returns direct to H.O. 12,000 = ₹1,92,000. Gross profit checks a third way as realised margin: H.O.-goods net margin (1,60,500 ÷ 3) ₹53,500 + local-goods margin ₹10,500 = ₹64,000, with zero gross/net residual.

Result: Closing debtors ₹15,000 · Closing stock ₹1,24,500 (SP) / ₹83,000 (cost) · Remittance to H.O. ₹1,86,000 · Net Profit ₹45,900 (proved on the invoice-price Branch Account and again on the cost basis).

Where the 18 marks sit

#	Component	Marks
1	Memorandum Branch Debtors A/c (→ closing debtors 15,000)	3
2	Memorandum Branch Stock A/c (→ closing stock 1,06,500)	3
3	Goods Sent to Branch A/c + Stock Reserve A/c	3
4	Branch Account with loading/stock-reserve entries (→ NP 45,900)	7
5	Branch Cash / remittance and closing-figure workings	2
	Total	18

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