Question 4 (a)
Branch Account under the Debtors System, goods invoiced below list price
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 (a) · 18 marksNisha of Patna invoices goods to its Ranchi Branch at 20% below the list price, which is cost plus 100%, and instructs that cash sales be made at invoice price and Credit Sales at List price. Using the following Particulars available from the Ranchi Branch, prepare the Ranchi Branch Account as per the Debtors System for the year ending 31st March 2025.
| Particulars | ₹ |
|---|---|
| Stock on 1st April 2024 (At invoice price) | 45,000 |
| Debtors on 1st April 2024 | 25,000 |
| Personal Computer at Branch (1-4-2024) | 1,25,000 |
| Goods received from H.O. at Invoice Price | 4,50,000 |
| Cash Sales | 2,05,000 |
| Credit Sales | 3,00,000 |
| Goods-in-transit on 31st March 2025 | 25,000 |
| Closing Balance of Cash | 1,250 |
| Cash sent to branch for expenses | 80,000 |
| Actual expenses at branch | 75,000 |
| Stock at the end at Invoice Price | 40,000 |
| Bad Debts written off | 1,000 |
| Goods returned by credit customers directly to H.O.at List Price | 4,000 |
| Debtors at end | 20,000 |
| Depreciation on Personal Computer by 20% |
Also Prepare:
the Branch Stock Account
the Branch Debtors Account
the Branch Cash 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
Read from the question
- prepare the Ranchi Branch AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.
What the paper leaves open
- The stock figures do not balance. At invoice price, opening stock plus goods received (₹4,95,000 in our version) exceed cash sales, credit sales net of the direct returns, the returns themselves and the closing stock by ₹10,000 (₹8,000 on the printed figures), and the paper does not explain the difference. We show it in the memorandum Branch Stock Account as goods unaccounted for (a shortage). It does not change the Branch Account profit, which the debtors system finds from balances, not from the stock account.
- The goods in transit are given with no price basis; we read them at invoice price, as the DU text's tutorial note does for goods sent unless stated otherwise.
- "Depreciation on Personal Computer by 20%" is read as 20% of its value at the start of the year.
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 Price structure and stock basis 2 marks 4 min
- 2 Branch Debtors Account 3 marks 5 min
- 3 Branch Stock Account 3 marks 5 min
- 4 Branch Cash Account 2 marks 4 min
- 5 Branch Account: goods in transit, stock reserves, loading, depreciation 6 marks 11 min
- 6 Net profit 2 marks 3 min
- Check: every adjustment used, both sides agree, dates in 2 min
Final answer
Check your own figures against these.
- Cash from debtors
- ₹3,00,000
- Remittance
- ₹5,08,750
- Shortage
- ₹10,000
- IP
- Net profit
- ₹1,17,625
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 and how the stock figures are read
Cost 100 → list price 200 → invoice price 160 (20% below list). So invoice price (IP) = 1.6 × cost, the loading is ⅜ of IP (60 ÷ 160), and IP = 0.8 × list.
The opening and closing stock and the goods received are stated at invoice price. The goods in transit, stated with no basis, are also taken at invoice price, the text's default for goods sent and branch stocks. None is grossed up. The Branch Account carries them at invoice price, and the loading is removed by the stock reserve on opening and closing stock and by the loading on net goods sent.
Working notes
WN1Memorandum Branch Debtors Account (list price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 25,000 | By Branch Cash (cash from debtors, balancing figure) | 3,00,000 |
| To Branch Stock (credit sales, list) | 3,00,000 | By Bad Debts | 1,000 |
| By Goods Sent to Branch (returned direct to the H.O., list) | 4,000 | ||
| By Balance c/d | 20,000 | ||
| Total | 3,25,000 | Total | 3,25,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 25,000 |
| To Branch Stock (credit sales, list) | 3,00,000 |
| Total | 3,25,000 |
| Cr | ₹ |
| By Branch Cash (cash from debtors, balancing figure) | 3,00,000 |
| By Bad Debts | 1,000 |
| By Goods Sent to Branch (returned direct to the H.O., list) | 4,000 |
| By Balance c/d | 20,000 |
| Total | 3,25,000 |
WN2Memorandum Branch Stock Account (invoice price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d (opening stock, IP) | 45,000 | By Branch Cash (cash sales, IP) | 2,05,000 |
| To Goods Sent to Branch (goods received, IP) | 4,50,000 | By Branch Debtors (net credit sales at IP) | 2,36,800 |
| By Goods Sent to Branch (direct returns by customers, at IP) | 3,200 | ||
| By Shortage: goods unaccounted for (balancing figure; paper note) | 10,000 | ||
| By Balance c/d (closing stock, IP) | 40,000 | ||
| Total | 4,95,000 | Total | 4,95,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d (opening stock, IP) | 45,000 |
| To Goods Sent to Branch (goods received, IP) | 4,50,000 |
| Total | 4,95,000 |
| Cr | ₹ |
| By Branch Cash (cash sales, IP) | 2,05,000 |
| By Branch Debtors (net credit sales at IP) | 2,36,800 |
| By Goods Sent to Branch (direct returns by customers, at IP) | 3,200 |
| By Shortage: goods unaccounted for (balancing figure; paper note) | 10,000 |
| By Balance c/d (closing stock, IP) | 40,000 |
| Total | 4,95,000 |
Net credit sales are relieved at invoice price, (3,00,000 − 4,000) × 0.8 = ₹2,36,800, and the direct returns are credited separately at invoice price, 4,000 × 0.8 = ₹3,200, as the DU text does for goods returned by branch customers straight to the head office. The goods in transit (₹25,000) have not reached the branch, so they are not in this account.
WN3Memorandum Branch Cash Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Cash Sales | 2,05,000 | By Expenses | 75,000 |
| To Branch Debtors (cash from debtors, WN1) | 3,00,000 | By Bank: remittance to the H.O. (balancing figure) | 5,08,750 |
| To Bank (cash sent by the H.O. for expenses) | 80,000 | By Balance c/d | 1,250 |
| Total | 5,85,000 | Total | 5,85,000 |
| Dr | ₹ |
|---|---|
| To Cash Sales | 2,05,000 |
| To Branch Debtors (cash from debtors, WN1) | 3,00,000 |
| To Bank (cash sent by the H.O. for expenses) | 80,000 |
| Total | 5,85,000 |
| Cr | ₹ |
| By Expenses | 75,000 |
| By Bank: remittance to the H.O. (balancing figure) | 5,08,750 |
| By Balance c/d | 1,250 |
| Total | 5,85,000 |
Ranchi Branch Account (Debtors System) for the year ending 31st March 2025
Goods sent are debited at invoice price including the goods in transit (4,50,000 + 25,000 = ₹4,75,000). The goods in transit are then carried down with the stock in hand, and the stock reserve is raised on both. That is what the DU text's Kolkata Branch Account does: it carries down "Branch Stock in Hand" ₹2,000 and "Branch Stock in Transit" ₹1,000 as separate balances, and computes the stock reserve on their total, Rs 3,000 × 25/125 = ₹600.
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d: Stock (IP) | 45,000 | By Stock Reserve (loading on opening stock, ⅜ × 45,000) | 16,875 |
| To Balance b/d: Debtors | 25,000 | By Goods Sent to Branch (direct returns by customers, IP) | 3,200 |
| To Balance b/d: Personal Computer | 1,25,000 | By Goods Sent to Branch (loading on net goods sent, ⅜ × 4,71,800) | 1,76,925 |
| To Goods Sent to Branch (IP, incl. goods in transit) | 4,75,000 | By Bank (remittance, WN3) | 5,08,750 |
| To Bank (cash sent for expenses) | 80,000 | By Balance c/d: Stock in hand (IP) | 40,000 |
| To Stock Reserve (loading on stock in hand and in transit, ⅜ × 65,000) | 24,375 | By Balance c/d: Stock in transit (IP) | 25,000 |
| To Net Profit → General P&L A/c | 1,17,625 | By Balance c/d: Debtors | 20,000 |
| By Balance c/d: Cash | 1,250 | ||
| By Balance c/d: Personal Computer (1,25,000 − 20%) | 1,00,000 | ||
| Total | 8,92,000 | Total | 8,92,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d: Stock (IP) | 45,000 |
| To Balance b/d: Debtors | 25,000 |
| To Balance b/d: Personal Computer | 1,25,000 |
| To Goods Sent to Branch (IP, incl. goods in transit) | 4,75,000 |
| To Bank (cash sent for expenses) | 80,000 |
| To Stock Reserve (loading on stock in hand and in transit, ⅜ × 65,000) | 24,375 |
| To Net Profit → General P&L A/c | 1,17,625 |
| Total | 8,92,000 |
| Cr | ₹ |
| By Stock Reserve (loading on opening stock, ⅜ × 45,000) | 16,875 |
| By Goods Sent to Branch (direct returns by customers, IP) | 3,200 |
| By Goods Sent to Branch (loading on net goods sent, ⅜ × 4,71,800) | 1,76,925 |
| By Bank (remittance, WN3) | 5,08,750 |
| By Balance c/d: Stock in hand (IP) | 40,000 |
| By Balance c/d: Stock in transit (IP) | 25,000 |
| By Balance c/d: Debtors | 20,000 |
| By Balance c/d: Cash | 1,250 |
| By Balance c/d: Personal Computer (1,25,000 − 20%) | 1,00,000 |
| Total | 8,92,000 |
Net goods sent = 4,75,000 − 3,200 direct returns = ₹4,71,800 at IP. Depreciation on the personal computer = 20% of ₹1,25,000 = ₹25,000. The ₹10,000 shortage needs no entry here: the Branch Account finds the profit from balances, and the lower closing stock already carries it.
Proof: cost-basis Branch Trading and Profit & Loss
Net sales = 2,05,000 + 3,00,000 − 4,000 = ₹5,01,000. Stocks and goods at cost (IP ÷ 1.6).
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Opening stock (cost) | 28,125 | By Net sales | 5,01,000 |
| To Net goods sent (cost, 4,71,800 ÷ 1.6) | 2,94,875 | By Closing stock (cost, in hand and in transit 65,000 ÷ 1.6) | 40,625 |
| To Gross profit | 2,18,625 | ||
| Total | 5,41,625 | Total | 5,41,625 |
| Dr | ₹ |
|---|---|
| To Opening stock (cost) | 28,125 |
| To Net goods sent (cost, 4,71,800 ÷ 1.6) | 2,94,875 |
| To Gross profit | 2,18,625 |
| Total | 5,41,625 |
| Cr | ₹ |
| By Net sales | 5,01,000 |
| By Closing stock (cost, in hand and in transit 65,000 ÷ 1.6) | 40,625 |
| Total | 5,41,625 |
Net profit = 2,18,625 − expenses 75,000 − bad debts 1,000 − depreciation 25,000 = ₹1,17,625, the same as the Branch Account. Gross profit also checks as the margin realised less the shortage at cost: 2,05,000 × ⅜ + 2,96,000 × ½ − 10,000 ÷ 1.6 = 76,875 + 1,48,000 − 6,250 = ₹2,18,625.
Result: cash from debtors ₹3,00,000 · remittance ₹5,08,750 · shortage ₹10,000 (IP) · net profit ₹1,17,625.
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Price structure (IP = 1.6 × cost; loading ⅜ of IP) and stock basis | 2 |
| 2 | Branch Debtors Account (cash from debtors ₹3,00,000) | 3 |
| 3 | Branch Stock Account (shortage ₹10,000 shown) | 3 |
| 4 | Branch Cash Account (remittance ₹5,08,750) | 2 |
| 5 | Branch Account: goods in transit, stock reserves, loading, depreciation | 6 |
| 6 | Net profit ₹1,17,625 | 2 |
| Total | 18 |
Report a problemopens an email to admin@getkunji.com with the question ID7369-Q4aalready filled in.