Question 4 OR

Branch accounts under the Stock and Debtors System

18 marks

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

Question

Question 4 OR · 18 marks

Harshit Ltd. Ranchi, a trading company, has a branch at Gaya. The H.O. makes all the purchases, and the Goods are invoiced to the Branch at cost plus 25%. The Branch expenses are paid by the H.O., and all the cash collected by the Branch is remitted to the H.O. All the branch transactions are being recorded in the books of the head office. The following information relates to the transactions of the Gaya Branch for the year ended 31st March, 2024:

Balances as on 01.04.2023
Branch Stock at invoice price	96,000
Branch Debtors	28,800
Branch Petty Cash	360
Transaction during the year 2023-24
Goods sent to Branch at invoice price	7,83,000
Return from Branch to H.O. at invoice price	36,000
Cash Sales	2,52,000
Credit Sales	4,32,000
Normal Loss at invoice price	840
Goods lost due to fire at invoice price	7,200
Cash sent for petty expenses	76,800
Bad Debts at Gaya Branch	960
Goods Returned by Debtors	1,200
Balances as on 31.03.2024
Branch Stock at invoice price	1,52,160
Branch Debtors	26,400
Branch Petty Cash	600

You are required to prepare the Branch Stock Account, the Branch Debtors Account, the Branch Petty Cash Account, the Branch Adjustment and the Branch Profit and Loss Account in the ledger of the H.O. for the year ending 31.03.2024.

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

The cash collected from debtors is not given; it is the balancing figure of the Branch Debtors Account.
The normal loss is charged at invoice price to the Branch Adjustment Account; the fire loss is abnormal: its loading goes to the Branch Adjustment Account and its cost to the Branch Profit and Loss Account.

Write it in this order

Read the data; tick every adjustment as you plan it 2 min
1 Branch Stock Account, with the normal and fire losses 5 marks 9 min
2 Branch Debtors Account cash collected worked out 3 marks 5 min
3 Branch Petty Cash Account 2 marks 4 min
4 Branch Adjustment Account 4 marks 7 min
5 Branch Profit and Loss Account 4 marks 7 min
Check: every adjustment used, both sides agree, dates in 2 min

12345

Final answer

Check your own figures against these.

Cash collected: ₹4,32,240
Gross profit: ₹1,35,888
Net profit: ₹52,608

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.

Basis of the answer

Invoice price = cost + 25%, so the loading is one-fifth of invoice price. Goods sent and branch stock are at invoice price.
Normal loss (₹840): Branch Adjustment A/c Dr with the full invoice price, To Branch Stock A/c. Loss by fire (₹7,200, abnormal): Branch Adjustment A/c Dr with the loading (1,440), Branch Profit and Loss A/c Dr with the cost (5,760), To Branch Stock A/c.
Returns by debtors to the branch: Branch Stock A/c Dr, To Branch Debtors A/c; credit sales: Branch Debtors A/c Dr, To Branch Stock A/c.
The loading on the net goods sent is credited to Branch Adjustment; the loading in opening stock is released into it and the loading in closing stock reserved out of it; the gross profit goes to Branch P&L.
Cash collected from debtors is the balancing figure of the Branch Debtors Account; petty expenses are the balancing figure of the Branch Petty Cash Account.

Branch Stock Account (at invoice price)

Dr	₹	Cr	₹
To Balance b/d	96,000	By Goods Sent to Branch A/c (returns to H.O.)	36,000
To Goods Sent to Branch A/c	7,83,000	By Bank A/c (cash sales)	2,52,000
To Branch Debtors A/c (returns by debtors)	1,200	By Branch Debtors A/c (credit sales)	4,32,000
		By Branch Adjustment A/c (normal loss)	840
		By Branch Adjustment A/c (fire: loading)	1,440
		By Branch Profit and Loss A/c (fire: cost)	5,760
		By Balance c/d	1,52,160
	8,80,200		8,80,200

Dr	₹
To Balance b/d	96,000
To Goods Sent to Branch A/c	7,83,000
To Branch Debtors A/c (returns by debtors)	1,200
	8,80,200
Cr	₹
By Goods Sent to Branch A/c (returns to H.O.)	36,000
By Bank A/c (cash sales)	2,52,000
By Branch Debtors A/c (credit sales)	4,32,000
By Branch Adjustment A/c (normal loss)	840
By Branch Adjustment A/c (fire: loading)	1,440
By Branch Profit and Loss A/c (fire: cost)	5,760
By Balance c/d	1,52,160
	8,80,200

Branch Debtors Account

Dr	₹	Cr	₹
To Balance b/d	28,800	By Branch Stock A/c (returns)	1,200
To Branch Stock A/c (credit sales)	4,32,000	By Branch Profit and Loss A/c (bad debts)	960
		By Bank A/c (cash collected, balancing figure)	4,32,240
		By Balance c/d	26,400
	4,60,800		4,60,800

Dr	₹
To Balance b/d	28,800
To Branch Stock A/c (credit sales)	4,32,000
	4,60,800
Cr	₹
By Branch Stock A/c (returns)	1,200
By Branch Profit and Loss A/c (bad debts)	960
By Bank A/c (cash collected, balancing figure)	4,32,240
By Balance c/d	26,400
	4,60,800

Branch Petty Cash Account

2 marks

Dr	₹	Cr	₹
To Balance b/d	360	By Branch Profit and Loss A/c (petty expenses, balancing figure)	76,560
To Bank A/c (cash sent)	76,800	By Balance c/d	600
	77,160		77,160

Dr	₹
To Balance b/d	360
To Bank A/c (cash sent)	76,800
	77,160
Cr	₹
By Branch Profit and Loss A/c (petty expenses, balancing figure)	76,560
By Balance c/d	600
	77,160

Branch Adjustment Account

4 marks

Dr	₹	Cr	₹
To Branch Stock A/c (normal loss)	840	By Stock Reserve A/c (loading in opening stock, 96,000 ÷ 5)	19,200
To Branch Stock A/c (loading on fire loss)	1,440	By Goods Sent to Branch A/c (loading on 7,47,000)	1,49,400
To Stock Reserve A/c (loading in closing stock, 1,52,160 ÷ 5)	30,432
To Branch Profit and Loss A/c (gross profit)	1,35,888
	1,68,600		1,68,600

Dr	₹
To Branch Stock A/c (normal loss)	840
To Branch Stock A/c (loading on fire loss)	1,440
To Stock Reserve A/c (loading in closing stock, 1,52,160 ÷ 5)	30,432
To Branch Profit and Loss A/c (gross profit)	1,35,888
	1,68,600
Cr	₹
By Stock Reserve A/c (loading in opening stock, 96,000 ÷ 5)	19,200
By Goods Sent to Branch A/c (loading on 7,47,000)	1,49,400
	1,68,600

Branch Profit and Loss Account for the year that ended 31.03.2024

4 marks

Dr	₹	Cr	₹
To Branch Petty Cash A/c (petty expenses)	76,560	By Branch Adjustment A/c (gross profit)	1,35,888
To Branch Debtors A/c (bad debts)	960
To Branch Stock A/c (cost of goods lost by fire)	5,760
To Net Profit → General Profit and Loss A/c	52,608
	1,35,888		1,35,888

Dr	₹
To Branch Petty Cash A/c (petty expenses)	76,560
To Branch Debtors A/c (bad debts)	960
To Branch Stock A/c (cost of goods lost by fire)	5,760
To Net Profit → General Profit and Loss A/c	52,608
	1,35,888
Cr	₹
By Branch Adjustment A/c (gross profit)	1,35,888
	1,35,888

Proof on cost. Net sales 2,52,000 + 4,32,000 − 1,200 = 6,82,800. Cost of sales = (96,000 + 7,83,000 − 36,000 − 1,52,160 − 7,200) × 4/5 = 5,46,912, which keeps the normal loss in the cost of sales. Gross profit = ₹1,35,888, as in the Branch Adjustment Account.

Result: cash collected ₹4,32,240 · gross profit ₹1,35,888 · net profit ₹52,608.

Where the 18 marks sit

#	Component	Marks
1	Branch Stock Account, with the normal and fire losses	5
2	Branch Debtors Account (cash collected worked out)	3
3	Branch Petty Cash Account	2
4	Branch Adjustment Account	4
5	Branch Profit and Loss Account	4
	Total	18

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