Question 4
Branch accounts under the Stock and Debtors System, with transfers and losses
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 · 18 marksK Ltd has two branches at Kanpur and Mathura. The branches are invoiced goods at cost plus 50%. Goods transferred by/to another branch are at its cost. The following information is available about the Kanpur branch's transactions for the year ended 31st march 2024.
| Particulars | Amount (Rs) |
|---|---|
| Opening stock at its cost | 5,76,720 |
| Goods sent to branch (including goods invoiced at Rs 32,400 to branch on 25th march, 2024, but not received by the branch till 31st march 2024) | 16,91,280 |
| Goods received from Mathura Branch | 12,960 |
| Goods transferred to Mathura branch | 1,10,160 |
| Goods returned by branch to H.O | 25,272 |
| Goods returned by credit customers to branch | 12,312 |
| Goods returned by credit customers directly to H.O | 2,592 |
| Agreed allowance to customers off the selling price (already considered at the time of invoicing) | 2,160 |
| Normal loss due to the wastage and deterioration of stock at cost to H.O. | 2,160 |
| Loss-in-transit (at invoice price) Rs 14,256 against which the insurance company paid a sum of Rs 8,784 in full settlement of the claim | |
| Cash sales RS 69,120 and credit sales Rs 15,75,504 | |
| Branch esileness (including insurance company charges) Rs 1,08,000 | |
| Bad debt Rs 2,160 and discount allowed to customers Rs 1,080 |
The branch manager is entitled a commission of 5% of the branch's profit, after such commission is charged.
Prepare: Branch Stock Account, the Branch Adjustment Account, and the Branch Profit and Loss Account, assuming that, as per physical verification, the closing stock at the branch at its cost amounted to Rs. 4,32,000.
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
- assuming that, as per physical verification,…The paper fixes this: use it as given, and say so in your answer.
- Prepare : 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" means the branch's own cost, which is invoice price; stock "at cost to H.O." is grossed up to invoice price.
- The normal loss is charged in full, at invoice price, to the Branch Adjustment Account; the loss in transit is abnormal (standing branch-loss rule).
- The allowance was already taken into account when invoicing, so the sales are net of it while the goods were recorded at full invoice price; it is credited to Branch Stock and debited to Branch Adjustment.
- "Branch esileness" is read as branch expenses.
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 Branch Stock Account, with transfers, losses and the shortage 7 marks 12 min
- 2 Branch Adjustment Account 5 marks 9 min
- 3 Branch Profit and Loss Account, with the commission 6 marks 11 min
- Check: every adjustment used, both sides agree, dates in 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
Invoice price (IP) = cost × 3/2, so the loading is one-third of IP. The entries follow the DU text's list of Stock and Debtors entries:
- "At its cost" is the branch's own cost, which is invoice price: the opening stock, both inter-branch transfers and the physical closing stock are posted as given.
- Goods returned by customers direct to the H.O. (2,592) do not touch Branch Stock: Goods Sent to Branch A/c Dr, Branch Debtors A/c Cr. Goods sent to another branch go through Goods Sent to Branch.
- Goods in transit (32,400 at IP) stay in the branch's closing stock, with their own stock reserve.
- Normal loss (2,160 at cost to the H.O. = 3,240 at IP) is charged at full invoice price to Branch Adjustment.
- Abnormal losses: the loss in transit (14,256) and the shortage the physical count reveals: are split: loading to Branch Adjustment, cost to Branch Profit and Loss; the insurance claim (8,784) is credited to Branch P&L.
- The allowance (2,160) was already taken into account when invoicing, so sales are net of it while the goods were recorded at full IP: Branch Stock Cr, Branch Adjustment Dr.
- Commission = 5% of the profit after charging it = profit before commission × 5/105.
Branch Stock Account for the year ended 31st March 2024 (invoice price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d (opening stock, at its cost = IP) | 5,76,720 | By Bank (cash sales) | 69,120 |
| To Goods Sent to Branch A/c (from H.O., including transit) | 16,91,280 | By Branch Debtors A/c (credit sales) | 15,75,504 |
| To Goods Sent to Branch A/c (from Mathura) | 12,960 | By Goods Sent to Branch A/c (returns to H.O.) | 25,272 |
| To Branch Debtors A/c (returns by customers) | 12,312 | By Goods Sent to Branch A/c (to Mathura) | 1,10,160 |
| By Branch Adjustment A/c (allowance to customers) | 2,160 | ||
| By Branch Adjustment A/c (normal loss at IP) | 3,240 | ||
| By Branch Adjustment A/c (loss in transit: loading) | 4,752 | ||
| By Branch Profit and Loss A/c (loss in transit: cost) | 9,504 | ||
| By Branch Adjustment A/c (shortage: loading) | 9,720 | ||
| By Branch Profit and Loss A/c (shortage: cost) | 19,440 | ||
| By Balance c/d: in hand (physical, at its cost = IP) | 4,32,000 | ||
| By Balance c/d: in transit | 32,400 | ||
| 22,93,272 | 22,93,272 |
| Dr | ₹ |
|---|---|
| To Balance b/d (opening stock, at its cost = IP) | 5,76,720 |
| To Goods Sent to Branch A/c (from H.O., including transit) | 16,91,280 |
| To Goods Sent to Branch A/c (from Mathura) | 12,960 |
| To Branch Debtors A/c (returns by customers) | 12,312 |
| 22,93,272 | |
| Cr | ₹ |
| By Bank (cash sales) | 69,120 |
| By Branch Debtors A/c (credit sales) | 15,75,504 |
| By Goods Sent to Branch A/c (returns to H.O.) | 25,272 |
| By Goods Sent to Branch A/c (to Mathura) | 1,10,160 |
| By Branch Adjustment A/c (allowance to customers) | 2,160 |
| By Branch Adjustment A/c (normal loss at IP) | 3,240 |
| By Branch Adjustment A/c (loss in transit: loading) | 4,752 |
| By Branch Profit and Loss A/c (loss in transit: cost) | 9,504 |
| By Branch Adjustment A/c (shortage: loading) | 9,720 |
| By Branch Profit and Loss A/c (shortage: cost) | 19,440 |
| By Balance c/d: in hand (physical, at its cost = IP) | 4,32,000 |
| By Balance c/d: in transit | 32,400 |
| 22,93,272 |
The shortage is the balancing figure: before it the credits fall short of the debits by ₹29,160 at IP; the normal loss is already recorded, so it is abnormal (loading 9,720; cost 19,440).
Branch Adjustment Account
5 marks| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Stock Reserve A/c (closing stock in hand, 4,32,000 ÷ 3) | 1,44,000 | By Stock Reserve A/c (opening stock, 5,76,720 ÷ 3) | 1,92,240 |
| To Stock Reserve A/c (goods in transit, 32,400 ÷ 3) | 10,800 | By Goods Sent to Branch A/c (loading on net goods, 15,66,216 ÷ 3) | 5,22,072 |
| To Branch Stock A/c (allowance to customers) | 2,160 | ||
| To Branch Stock A/c (normal loss at IP) | 3,240 | ||
| To Branch Stock A/c (loading on loss in transit) | 4,752 | ||
| To Branch Stock A/c (loading on shortage) | 9,720 | ||
| To Branch Profit and Loss A/c (gross profit) | 5,39,640 | ||
| 7,14,312 | 7,14,312 |
| Dr | ₹ |
|---|---|
| To Stock Reserve A/c (closing stock in hand, 4,32,000 ÷ 3) | 1,44,000 |
| To Stock Reserve A/c (goods in transit, 32,400 ÷ 3) | 10,800 |
| To Branch Stock A/c (allowance to customers) | 2,160 |
| To Branch Stock A/c (normal loss at IP) | 3,240 |
| To Branch Stock A/c (loading on loss in transit) | 4,752 |
| To Branch Stock A/c (loading on shortage) | 9,720 |
| To Branch Profit and Loss A/c (gross profit) | 5,39,640 |
| 7,14,312 | |
| Cr | ₹ |
| By Stock Reserve A/c (opening stock, 5,76,720 ÷ 3) | 1,92,240 |
| By Goods Sent to Branch A/c (loading on net goods, 15,66,216 ÷ 3) | 5,22,072 |
| 7,14,312 |
Branch Profit and Loss Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Branch expenses (including insurance) | 1,08,000 | By Branch Adjustment A/c (gross profit) | 5,39,640 |
| To Bad debts | 2,160 | By Insurance claim (loss in transit) | 8,784 |
| To Discount allowed | 1,080 | ||
| To Loss in transit (cost) | 9,504 | ||
| To Shortage of stock (cost) | 19,440 | ||
| To Branch manager's commission | 19,440 | ||
| To Net Profit → General Profit and Loss A/c | 3,88,800 | ||
| 5,48,424 | 5,48,424 |
| Dr | ₹ |
|---|---|
| To Branch expenses (including insurance) | 1,08,000 |
| To Bad debts | 2,160 |
| To Discount allowed | 1,080 |
| To Loss in transit (cost) | 9,504 |
| To Shortage of stock (cost) | 19,440 |
| To Branch manager's commission | 19,440 |
| To Net Profit → General Profit and Loss A/c | 3,88,800 |
| 5,48,424 | |
| Cr | ₹ |
| By Branch Adjustment A/c (gross profit) | 5,39,640 |
| By Insurance claim (loss in transit) | 8,784 |
| 5,48,424 |
Working notes
Working notes
- Goods Sent to Branch Account: Dr returns by the branch 25,272, customers' returns direct 2,592, goods to Mathura 1,10,160, loading on net goods 5,22,072, cost of net goods 10,44,144 = 17,04,240; Cr goods sent 16,91,280 + goods from Mathura 12,960 = 17,04,240. Net goods at IP = 16,91,280 + 12,960 − 25,272 − 2,592 − 1,10,160 = 15,66,216.
| Goods Sent to Branch A/c | ₹ | ₹ | |
|---|---|---|---|
| To Branch Stock (returns by the branch) | 25,272 | By Branch Stock (goods sent) | 16,91,280 |
| To Branch Debtors (customers' returns direct to H.O.) | 2,592 | By Branch Stock (goods from Mathura) | 12,960 |
| To Branch Stock (goods to Mathura) | 1,10,160 | ||
| To Branch Adjustment (loading on net goods) | 5,22,072 | ||
| To Purchases / Trading (cost of net goods) | 10,44,144 | ||
| 17,04,240 | 17,04,240 |
- Commission: profit before commission = 5,39,640 + 8,784 − (1,08,000 + 2,160 + 1,080 + 9,504 + 19,440) = 4,08,240; commission 4,08,240 × 5/105 = ₹19,440; net profit ₹3,88,800, and 5% of 3,88,800 = 19,440.
- Proof on cost: net sales 69,120 + 15,75,504 − 12,312 − 2,592 = 16,29,720; cost of sales = (5,76,720 + 15,66,216 − 4,32,000 − 32,400 − 14,256 − 29,160) × 2/3 = 10,90,080; gross profit = ₹5,39,640, as above.
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Branch Stock Account, with transfers, losses and the shortage | 7 |
| 2 | Branch Adjustment Account | 5 |
| 3 | Branch Profit and Loss Account, with the commission | 6 |
| Total | 18 |
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