Question 4 OR
Branch Account under the Debtors System
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 OR · 18 marksThe H.O. supplies goods to Ranchi branch at 20% profit on the invoice price. An expense (except petty expenses) are paid directly by H.O. These petty expenses are paid by the branches that are allowed to keep a petty cash balance of Rs. 8,400 on the imprest system. From the balance below, prepare Ranchi Branch A/C:
| Balances as on 01.04.2023 | Rs |
|---|---|
| Branch Stock at cost price | 4,30,080 |
| Debtors at branch | 1,46,160 |
| Branch Petty Cash | 8400 |
| Creditors at branch | 42,000 |
| Furniture at branch | 1,26,000 |
| Prepaid rent for 3 months | 10,080 |
| Transaction during the year 2023-24 | Rs |
| Goods sent to Branch at invoice price | 19,48,800 |
| Return from Branch to H.O. at invoice price | 16,800 |
| Cash Sales at branch | 15,96,000 |
| Credit Sales at branch | 10,92,000 |
| Allowance to Debtors | 20,160 |
| Cash received from customers | 9,24,000 |
| Cash purchases by branch (on H.O. permission) | 2,52,000 |
| Bad Debts written off | 5,040 |
| Cash paid to creditors | 1,68,000 |
| Payments made by the head H.O. | Rs |
| Rent for a year (paid on October 1, 2023) | 40,320 |
| Salaries (paid in advance – Rs 8,400) | 42,000 |
| Insurance paid for one year (up to 30th June, 2024) | 30,240 |
| Payments made by the Branch | Rs |
| Petty Expenses | 20,160 |
| Balances as on 31.03.2024 | Rs |
| Branch Stock at cost | 6,72,000 |
| Branch Creditoors | 58,800 |
Provide Depreciation on furniture @ 20% p.a.
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
- "An expense... are paid by H.O." is read as: all expenses except petty expenses are paid by the H.O.
- Stock is given at cost and shown in the Branch Account at invoice price, with a stock reserve for the loading.
- The cash the branch remits to the H.O. is not given; it is worked out.
- The H.O. restores the petty-cash imprest.
- Nothing is given for the rent between the prepaid quarter and the year paid on October 1, so no rent is accrued for it.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Opening and closing items, stock at invoice price with the stock reserve 5 marks 9 min
- 2 Goods sent, returns and loading 3 marks 6 min
- 3 Remittance and credit purchases worked out 3 marks 5 min
- 4 Expenses, prepayments, petty cash and depreciation 4 marks 7 min
- 5 Net profit, with the proof on cost 3 marks 5 min
- Check: arithmetic, units (₹, %), final answer underlined 2 min
Try it first. About 36 minutes for 18 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Basis of the answer
- Under the Debtors System the H.O. keeps one nominal Branch Account for the branch; its purpose is to find the branch's profit or loss.
- Goods are sent at 20% profit on invoice price, that is, cost plus 25%, so the loading is one-fifth of invoice price. The stock is given at cost price, so it is grossed up to invoice price (× 5/4) and its loading removed through the stock reserve; the loading on the net goods sent is removed through the Goods Sent to Branch Account.
- Figures not given are worked out: closing debtors from the debtors' movements; credit purchases from the creditors (42,000 + purchases − 1,68,000 = 58,800, so ₹1,84,800); and the cash the branch remits to the H.O.: cash sales 15,96,000 + collections 9,24,000 − cash purchases 2,52,000 − paid to creditors 1,68,000 = ₹21,00,000.
- The H.O. restores the petty-cash imprest: it sends the ₹20,160 spent, and the branch ends with ₹8,400.
- Prepayments at the year end: rent paid on 1st October 2023 for a year, so six months (20,160) is prepaid; salaries paid in advance 8,400; insurance to 30th June 2024, so three months (7,560) is prepaid. The part of a payment that covers a later period is carried forward as an unexpired (prepaid) amount, as with an insurance premium paid in advance. Nothing is given for the rent of July to September 2023, so none is accrued (paper note).
Ranchi Branch Account for the year ended 31st March 2024
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d: Stock (4,30,080 × 5/4) | 5,37,600 | By Balance b/d: Creditors | 42,000 |
| To Balance b/d: Debtors | 1,46,160 | By Stock Reserve (loading on opening stock) | 1,07,520 |
| To Balance b/d: Petty Cash | 8,400 | By Goods Sent to Branch (returns) | 16,800 |
| To Balance b/d: Furniture | 1,26,000 | By Goods Sent to Branch (loading on 19,32,000) | 3,86,400 |
| To Balance b/d: Prepaid Rent | 10,080 | By Bank (remittances) | 21,00,000 |
| To Goods Sent to Branch | 19,48,800 | By Balance c/d: Stock (6,72,000 × 5/4) | 8,40,000 |
| To Bank: Rent | 40,320 | By Balance c/d: Debtors | 2,88,960 |
| To Bank: Salaries | 42,000 | By Balance c/d: Petty Cash | 8,400 |
| To Bank: Insurance | 30,240 | By Balance c/d: Furniture (1,26,000 − 20%) | 1,00,800 |
| To Bank: Petty Cash (imprest restored) | 20,160 | By Balance c/d: Prepaid Rent | 20,160 |
| To Stock Reserve (loading on closing stock) | 1,68,000 | By Balance c/d: Salaries paid in advance | 8,400 |
| To Balance c/d: Creditors | 58,800 | By Balance c/d: Prepaid Insurance | 7,560 |
| To Net Profit → General Profit and Loss A/c | 7,90,440 | ||
| 39,27,000 | 39,27,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d: Stock (4,30,080 × 5/4) | 5,37,600 |
| To Balance b/d: Debtors | 1,46,160 |
| To Balance b/d: Petty Cash | 8,400 |
| To Balance b/d: Furniture | 1,26,000 |
| To Balance b/d: Prepaid Rent | 10,080 |
| To Goods Sent to Branch | 19,48,800 |
| To Bank: Rent | 40,320 |
| To Bank: Salaries | 42,000 |
| To Bank: Insurance | 30,240 |
| To Bank: Petty Cash (imprest restored) | 20,160 |
| To Stock Reserve (loading on closing stock) | 1,68,000 |
| To Balance c/d: Creditors | 58,800 |
| To Net Profit → General Profit and Loss A/c | 7,90,440 |
| 39,27,000 | |
| Cr | ₹ |
| By Balance b/d: Creditors | 42,000 |
| By Stock Reserve (loading on opening stock) | 1,07,520 |
| By Goods Sent to Branch (returns) | 16,800 |
| By Goods Sent to Branch (loading on 19,32,000) | 3,86,400 |
| By Bank (remittances) | 21,00,000 |
| By Balance c/d: Stock (6,72,000 × 5/4) | 8,40,000 |
| By Balance c/d: Debtors | 2,88,960 |
| By Balance c/d: Petty Cash | 8,400 |
| By Balance c/d: Furniture (1,26,000 − 20%) | 1,00,800 |
| By Balance c/d: Prepaid Rent | 20,160 |
| By Balance c/d: Salaries paid in advance | 8,400 |
| By Balance c/d: Prepaid Insurance | 7,560 |
| 39,27,000 |
Closing debtors: 1,46,160 + 10,92,000 − 20,160 − 9,24,000 − 5,040 = ₹2,88,960.
Proof on cost
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Rent (10,080 + 40,320 − 20,160) | 30,240 | By Gross Profit (sales 26,67,840 − cost of sales 17,40,480) | 9,27,360 |
| To Salaries (42,000 − 8,400) | 33,600 | ||
| To Insurance (30,240 − 7,560) | 22,680 | ||
| To Petty Expenses | 20,160 | ||
| To Bad Debts | 5,040 | ||
| To Depreciation on Furniture | 25,200 | ||
| To Net Profit | 7,90,440 | ||
| 9,27,360 | 9,27,360 |
| Dr | ₹ |
|---|---|
| To Rent (10,080 + 40,320 − 20,160) | 30,240 |
| To Salaries (42,000 − 8,400) | 33,600 |
| To Insurance (30,240 − 7,560) | 22,680 |
| To Petty Expenses | 20,160 |
| To Bad Debts | 5,040 |
| To Depreciation on Furniture | 25,200 |
| To Net Profit | 7,90,440 |
| 9,27,360 | |
| Cr | ₹ |
| By Gross Profit (sales 26,67,840 − cost of sales 17,40,480) | 9,27,360 |
| 9,27,360 |
Sales = 15,96,000 + 10,92,000 − allowances 20,160 = 26,67,840. Cost of sales = opening stock 4,30,080 + goods from H.O. at cost 15,45,600 (19,32,000 × 4/5) + purchases 4,36,800 (cash 2,52,000 + credit 1,84,800) − closing stock 6,72,000 = 17,40,480. The net profit agrees with the Branch Account.
The other reading: allowance to debtors as an expense
This answer deducts the ₹20,160 allowance to debtors from sales. It can instead be charged as an expense below gross profit, with sales taken at ₹26,88,000. Only the split between gross profit and expenses changes; the Branch Account, which is what the question asks for, and the net profit are the same either way.
| Figure | This answer (allowance deducted from sales) | Allowance as an expense |
|---|---|---|
| Sales | 26,67,840 | 26,88,000 |
| Gross profit on cost | 9,27,360 | 9,47,520 |
| Allowance to debtors charged as an expense | — | 20,160 |
| Net profit | 7,90,440 | 7,90,440 |
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Opening and closing items, stock at invoice price with the stock reserve | 5 |
| 2 | Goods sent, returns and loading | 3 |
| 3 | Remittance and credit purchases worked out | 3 |
| 4 | Expenses, prepayments, petty cash and depreciation | 4 |
| 5 | Net profit, with the proof on cost | 3 |
| Total | 18 |
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