Question 4 OR (b)

Branch Accounts (Stock & Debtors system, invoice price)

18 marks

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

Question

Question 4 OR (b) · 18 marks

R Ltd has two branches at Jaipur and Pune. Goods are Invoiced to Branches at cost plus 50%, and goods are transferred by/to another branch at its cost. The following information is available about the transaction of Jaipur Branch for the year that ended on 31st March.

Particulars	Rs
Opening Stock at its cost	3,20,400
Goods sent to Branch (including goods invoiced at 18,000 to branch on 31st March but not received by the branch before the close of the financial year)	9,39,600
Goods received from Pune Branch	7,200
Goods transferred to Pune Branch	61,200
Goods returned by Jaipur Branch to HO	14,040
Goods returned by credit customers to Jaipur Branch	6,840
Goods returned by Credit customers directly to H.O	1,440
Agreed allowance to the Customers off the selling Price (already taken into account when invoicing)	1,200
Normal Loss due to wastage and deterioration of the stock (at cost)	1,200
Loss in transit (at invoice price) Rs 7,920 against which a sum of Rs 4,880 was recovered by Jaipur Branch from the insurance company in complete settlement of the claim.
Cash Sales	38,400
Credit Sales	8,75,280
Branch Expenses (including Insurance Charges)	60,000
Bad Debts	1,200
Discount allowed to customers	600

The Branch Manager is entitled to a commission of 5% of the Profit of the Branch after charging such commission.

If the Closing Stock at Branch at its cost amounted to Rs. 2,40,000 as per physical verification, prepare the Branch Stock Account, the Branch Adjustment Account and the Branch Profit and Loss 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 the Branch Stock AccountProper formats (heading, date, both sides): post the plain items, then each adjustment, and balance last.

What the paper leaves open

"At its cost" (the opening stock, both inter-branch transfers and the physically verified closing stock) is read as the branch's own cost, which is invoice price, as the DU text defines it; the normal loss "(at cost)" is read as cost to the head office and grossed up.
Goods returned by the branch to the head office are taken at invoice price.
Goods invoiced on 31st March but not received are goods in transit, carried in closing stock.
The allowance "already taken into account while invoicing" is taken as a reduction of what the branch realised on goods recorded at invoice price.
The loss in transit is on goods sent to the branch, since the branch recovered from the insurer.
Any stock shortage left after the normal loss is treated as abnormal.

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 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: every adjustment used, both sides agree, dates in 2 min

12345

Final answer

Check your own figures against these.

Shortage: ₹16,200 at IP (₹10,800 at cost)
Closing stock: ₹2,40,000 in hand + ₹18,000 in transit at IP (₹1,72,000 at cost)
Gross Profit: ₹2,99,800
Commission: ₹10,800
Net Profit: ₹2,16,000

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.

The convention, stated once

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

Branch Stock is kept at invoice price, and a stock reserve removes the loading from closing stock carried at invoice price (entries 14 and 15).
"At its cost" means the branch's own cost, which is invoice price. The opening stock, both inter-branch transfers and the physical closing stock are therefore posted as given (₹7,200 in; ₹61,200 out), 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 Dr, Branch Debtors A/c Cr.
Goods in transit (₹18,000 at IP) stay in the branch's closing stock, carried down separately as "in transit", with their own stock reserve.
Normal loss (₹1,200 at cost to the head office = ₹1,800 at IP) is charged at its full invoice price to Branch Adjustment and 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 (₹1,200) reduced what the branch realised on goods recorded at full invoice price: Branch Stock Cr, Branch Adjustment Dr.

Price structure: cost plus 50%, so invoice price (IP) = cost × 3/2 and the loading = one-third of IP.

Working notes

WN1Every figure at invoice price, and its loading

Only the normal loss is stated at cost to the head office and needs grossing up; every "its cost" figure is already at invoice price.

Item	As given	IP	Loading (⅓ of IP)	Cost (IP × ⅔)
Opening stock	its cost = IP	3,20,400	1,06,800	2,13,600
Goods received from Pune	its cost = IP	7,200	2,400	4,800
Goods sent to Pune	its cost = IP	61,200	20,400	40,800
Normal loss	cost to H.O. 1,200 × 3/2	1,800	600	1,200
Closing stock in hand (physical)	its cost = IP	2,40,000	80,000	1,60,000
Goods in transit	IP	18,000	6,000	12,000
Loss in transit	IP	7,920	2,640	5,280

WN2Goods Sent to Branch Account (invoice price: foots ✓)

Dr	₹	Cr	₹
To Branch Stock A/c (returns by the branch)	14,040	By Branch Stock A/c (goods sent by the H.O.)	9,39,600
To Branch Debtors A/c (customer returns direct to the H.O.)	1,440	By Branch Stock A/c (goods received from Pune)	7,200
To Branch Stock A/c (goods sent to Pune)	61,200
To Branch Adjustment A/c (loading on net goods)	2,90,040
To Purchases / Trading A/c (cost of net goods)	5,80,080
	9,46,800		9,46,800

Dr	₹
To Branch Stock A/c (returns by the branch)	14,040
To Branch Debtors A/c (customer returns direct to the H.O.)	1,440
To Branch Stock A/c (goods sent to Pune)	61,200
To Branch Adjustment A/c (loading on net goods)	2,90,040
To Purchases / Trading A/c (cost of net goods)	5,80,080
	9,46,800
Cr	₹
By Branch Stock A/c (goods sent by the H.O.)	9,39,600
By Branch Stock A/c (goods received from Pune)	7,200
	9,46,800

Net goods sent at IP = 9,39,600 + 7,200 − 14,040 − 1,440 − 61,200 = ₹8,70,120; loading ⅓ = ₹2,90,040; cost ₹5,80,080. Stock reserve: the opening ₹1,06,800 is released; the closing reserve is ₹80,000 + ₹6,000 = ₹86,000.

WN3Manager's commission (after charging itself)

Profit before commission = 3,04,680 − (60,000 + 1,200 + 600 + 5,280 + 10,800) = ₹2,26,800. Commission = 2,26,800 × 5 ÷ 105 = ₹10,800; net profit = ₹2,16,000, and 5% of ₹2,16,000 is ₹10,800 ✓.

Branch Stock Account (Jaipur) for the year ended 31st March (invoice price: foots ✓)

Dr	₹	Cr	₹
To Balance b/d (opening stock at IP)	3,20,400	By Branch Cash A/c (cash sales)	38,400
To Goods Sent to Branch A/c (from H.O.)	9,39,600	By Branch Debtors A/c (credit sales)	8,75,280
To Goods Sent to Branch A/c (from Pune, IP)	7,200	By Goods Sent to Branch A/c (returns to H.O.)	14,040
To Branch Debtors A/c (returns by customers)	6,840	By Goods Sent to Branch A/c (to Pune, IP)	61,200
		By Branch Adjustment A/c (allowance to customers)	1,200
		By Branch Adjustment A/c (normal loss, at IP)	1,800
		By Branch Adjustment A/c (loading on loss in transit)	2,640
		By Branch P&L A/c (loss in transit, at cost)	5,280
		By Branch Adjustment A/c (loading on shortage)	5,400
		By Branch P&L A/c (shortage, at cost)	10,800
		By Balance c/d: in hand (physical, at its cost = IP)	2,40,000
		By Balance c/d: in transit	18,000
	12,74,040		12,74,040

Dr	₹
To Balance b/d (opening stock at IP)	3,20,400
To Goods Sent to Branch A/c (from H.O.)	9,39,600
To Goods Sent to Branch A/c (from Pune, IP)	7,200
To Branch Debtors A/c (returns by customers)	6,840
	12,74,040
Cr	₹
By Branch Cash A/c (cash sales)	38,400
By Branch Debtors A/c (credit sales)	8,75,280
By Goods Sent to Branch A/c (returns to H.O.)	14,040
By Goods Sent to Branch A/c (to Pune, IP)	61,200
By Branch Adjustment A/c (allowance to customers)	1,200
By Branch Adjustment A/c (normal loss, at IP)	1,800
By Branch Adjustment A/c (loading on loss in transit)	2,640
By Branch P&L A/c (loss in transit, at cost)	5,280
By Branch Adjustment A/c (loading on shortage)	5,400
By Branch P&L A/c (shortage, at cost)	10,800
By Balance c/d: in hand (physical, at its cost = IP)	2,40,000
By Balance c/d: in transit	18,000
	12,74,040

The shortage is the balancing figure. Before it, the credits total ₹12,57,840 against debits of ₹12,74,040, so goods worth ₹16,200 at IP are unaccounted for: ₹5,400 loading and ₹10,800 at cost. The normal loss is already recorded separately, so this residue is treated as abnormal (paper note).

Branch Adjustment Account (loading = ⅓ of IP: foots ✓)

Dr	₹	Cr	₹
To Stock Reserve A/c (closing stock in hand, 2,40,000 ÷ 3)	80,000	By Stock Reserve A/c (opening stock, 3,20,400 ÷ 3)	1,06,800
To Stock Reserve A/c (goods in transit, 18,000 ÷ 3)	6,000	By Goods Sent to Branch A/c (loading on net goods, 8,70,120 ÷ 3, WN2)	2,90,040
To Branch Stock A/c (allowance to customers)	1,200
To Branch Stock A/c (normal loss, at IP)	1,800
To Branch Stock A/c (loading on loss in transit)	2,640
To Branch Stock A/c (loading on shortage)	5,400
To Gross Profit c/d → Branch P&L A/c	2,99,800
	3,96,840		3,96,840

Dr	₹
To Stock Reserve A/c (closing stock in hand, 2,40,000 ÷ 3)	80,000
To Stock Reserve A/c (goods in transit, 18,000 ÷ 3)	6,000
To Branch Stock A/c (allowance to customers)	1,200
To Branch Stock A/c (normal loss, at IP)	1,800
To Branch Stock A/c (loading on loss in transit)	2,640
To Branch Stock A/c (loading on shortage)	5,400
To Gross Profit c/d → Branch P&L A/c	2,99,800
	3,96,840
Cr	₹
By Stock Reserve A/c (opening stock, 3,20,400 ÷ 3)	1,06,800
By Goods Sent to Branch A/c (loading on net goods, 8,70,120 ÷ 3, WN2)	2,90,040
	3,96,840

Branch Profit & Loss Account (Jaipur) for the year ended 31st March (foots ✓)

Dr	₹	Cr	₹
To Branch Expenses (including insurance)	60,000	By Gross Profit b/d (Branch Adjustment A/c)	2,99,800
To Bad Debts	1,200	By Insurance claim settled (loss in transit)	4,880
To Discount Allowed	600
To Loss in Transit (at cost)	5,280
To Shortage of Stock (at cost)	10,800
To Branch Manager's Commission (WN3)	10,800
To Net Profit → General P&L A/c	2,16,000
	3,04,680		3,04,680

Dr	₹
To Branch Expenses (including insurance)	60,000
To Bad Debts	1,200
To Discount Allowed	600
To Loss in Transit (at cost)	5,280
To Shortage of Stock (at cost)	10,800
To Branch Manager's Commission (WN3)	10,800
To Net Profit → General P&L A/c	2,16,000
	3,04,680
Cr	₹
By Gross Profit b/d (Branch Adjustment A/c)	2,99,800
By Insurance claim settled (loss in transit)	4,880
	3,04,680

Proof: independent cost-basis trading account (foots ✓)

Every figure at cost, with no loading and no reserve. Net sales = 38,400 + 8,75,280 − 6,840 − 1,440.

Dr	₹	Cr	₹
To Opening Stock (at cost, 3,20,400 × ⅔)	2,13,600	By Net Sales	9,05,400
To Net Goods from H.O. and Pune (at cost, WN2)	5,80,080	By Closing Stock at cost (2,40,000 × ⅔ = 1,60,000 in hand + 12,000 in transit)	1,72,000
To Gross Profit	2,99,800	By Loss in Transit (at cost)	5,280
		By Shortage (at cost)	10,800
	10,93,480		10,93,480

Dr	₹
To Opening Stock (at cost, 3,20,400 × ⅔)	2,13,600
To Net Goods from H.O. and Pune (at cost, WN2)	5,80,080
To Gross Profit	2,99,800
	10,93,480
Cr	₹
By Net Sales	9,05,400
By Closing Stock at cost (2,40,000 × ⅔ = 1,60,000 in hand + 12,000 in transit)	1,72,000
By Loss in Transit (at cost)	5,280
By Shortage (at cost)	10,800
	10,93,480

The normal loss is not credited here: as a normal loss it stays inside the cost of goods sold. The cost-basis gross profit equals the Branch Adjustment balancing figure exactly, with zero residual.

Result: shortage ₹16,200 at IP (₹10,800 at cost) · closing stock ₹2,40,000 in hand + ₹18,000 in transit at IP (₹1,72,000 at cost) · Gross Profit ₹2,99,800 · commission ₹10,800 · Net Profit ₹2,16,000.

The other reading of "at its cost" (cost to the head office, grossed up by 3/2 for the opening stock, both transfers and the physical closing stock) gives a shortage of ₹29,400 at IP, the same gross profit of ₹2,99,800, commission ₹10,380.95 and net profit ₹2,07,619.05: results in paise, against whole rupees above.

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 2,99,800)	5
4	Branch P&L A/c (abnormal losses, insurance, commission → NP 2,16,000)	4
5	Commission after charging itself (WN3)	1
	Total	18

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