Question 4

Branch Account under the Debtors System

18 marks

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

Question

Question 4 · 18 marks

Sumitra Traders has its Head Office at Jaipur and a Branch at Bhopal. The Bhopal Branch is supplied with goods from the H.O. at cost plus 25%. All the expenses (except petty expenses are paid directly by the H.O. These petty expenses are met by the branches that are permitted to keep a petty cash balance of Rs. 16,800 on the imprest system. The following information is available about the transactions of the Bhopal Branch:

Balances as on 31st March 2023
Petty Cash at Branch	16,800
Stock at Branch (at Cost Price)	8,60,160
Debtors at Branch	2,92,320
Creditors at Branch	84,000
Furniture at Branch	2,52,000
Prepaid Rent for 3 months	20,160
Transactions for the year ended 31st March 2024
Goods sent to Branch (at Invoice Price)	38,97,600
Cash Sales at Branch	31,92,000
Credit Sales at Branch	21,84,000
Allowances to Debtors	40,320
Cash collected by branch from debtors	18,48,000
Bad debts written off	10,080
Goods returned by Branch to H.O.	33,600
Cash Purchases by Branch (on H.O. Permission)	5,04,000
Cash Paid to creditors	3,36,000
Payments by the H.O.
One year's rent (Paid on Oct 1st 2023)	80,640
Salaries (Paid in advance 16,800)	84,000
Insurance Paid for one year (up to 30th June 2024.)	60,480
Payments made by Branch
Petty Expenses	40,320
Balances as on 31st March 2024:
Stock (at Cost Price)	13,44,000
Creditors	1,17,600

Provide depreciation at the rate of 20% p.a. on furniture. You are required to prepare the Bhopal Branch Account, using the Debtors System.

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 Bhopal Branch AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.

What the paper leaves open

The opening parenthesis after "All expenses" is not closed; the sentence is read as: all expenses except petty expenses are paid by the H.O.
Stock is given at cost price and is shown in the Branch Account at invoice price (cost plus 25%), with a stock reserve for the loading.
The cash the branch remits to the H.O. is not given; it is worked out as its cash sales and collections less its cash purchases and payments to creditors.
The H.O. restores the petty-cash imprest.
The prepaid rent covers April to June and the year's rent is paid on 1 October; nothing is given for July to September, so no rent is accrued for it.

Write it in this order

Read the data; tick every adjustment as you plan it 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: every adjustment used, both sides agree, dates in 2 min

12345

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 invoice price, 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 (84,000 + purchases − 3,36,000 = 1,17,600, so ₹3,69,600); and the cash the branch remits to the H.O.: cash sales 31,92,000 + collections 18,48,000 − cash purchases 5,04,000 − paid to creditors 3,36,000 = ₹42,00,000.
The H.O. restores the petty-cash imprest: it sends the ₹40,320 spent, and the branch ends with ₹16,800.
Prepayments at the year end: rent paid on 1st October 2023 for a year, so six months (40,320) is prepaid; salaries paid in advance 16,800; insurance to 30th June 2024, so three months (15,120) 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).

Bhopal Branch Account for the year ended 31st March 2024

Dr	₹	Cr	₹
To Balance b/d: Stock (8,60,160 × 5/4)	10,75,200	By Balance b/d: Creditors	84,000
To Balance b/d: Debtors	2,92,320	By Stock Reserve (loading on opening stock)	2,15,040
To Balance b/d: Petty Cash	16,800	By Goods Sent to Branch (returns)	33,600
To Balance b/d: Furniture	2,52,000	By Goods Sent to Branch (loading on 38,64,000)	7,72,800
To Balance b/d: Prepaid Rent	20,160	By Bank (remittances)	42,00,000
To Goods Sent to Branch	38,97,600	By Balance c/d: Stock (13,44,000 × 5/4)	16,80,000
To Bank: Rent	80,640	By Balance c/d: Debtors	5,77,920
To Bank: Salaries	84,000	By Balance c/d: Petty Cash	16,800
To Bank: Insurance	60,480	By Balance c/d: Furniture (2,52,000 − 20%)	2,01,600
To Bank: Petty Cash (imprest restored)	40,320	By Balance c/d: Prepaid Rent	40,320
To Stock Reserve (loading on closing stock)	3,36,000	By Balance c/d: Salaries paid in advance	16,800
To Balance c/d: Creditors	1,17,600	By Balance c/d: Prepaid Insurance	15,120
To Net Profit → General Profit and Loss A/c	15,80,880
	78,54,000		78,54,000

Dr	₹
To Balance b/d: Stock (8,60,160 × 5/4)	10,75,200
To Balance b/d: Debtors	2,92,320
To Balance b/d: Petty Cash	16,800
To Balance b/d: Furniture	2,52,000
To Balance b/d: Prepaid Rent	20,160
To Goods Sent to Branch	38,97,600
To Bank: Rent	80,640
To Bank: Salaries	84,000
To Bank: Insurance	60,480
To Bank: Petty Cash (imprest restored)	40,320
To Stock Reserve (loading on closing stock)	3,36,000
To Balance c/d: Creditors	1,17,600
To Net Profit → General Profit and Loss A/c	15,80,880
	78,54,000
Cr	₹
By Balance b/d: Creditors	84,000
By Stock Reserve (loading on opening stock)	2,15,040
By Goods Sent to Branch (returns)	33,600
By Goods Sent to Branch (loading on 38,64,000)	7,72,800
By Bank (remittances)	42,00,000
By Balance c/d: Stock (13,44,000 × 5/4)	16,80,000
By Balance c/d: Debtors	5,77,920
By Balance c/d: Petty Cash	16,800
By Balance c/d: Furniture (2,52,000 − 20%)	2,01,600
By Balance c/d: Prepaid Rent	40,320
By Balance c/d: Salaries paid in advance	16,800
By Balance c/d: Prepaid Insurance	15,120
	78,54,000

Closing debtors: 2,92,320 + 21,84,000 − 40,320 − 18,48,000 − 10,080 = ₹5,77,920.

Proof on cost

Dr	₹	Cr	₹
To Rent (20,160 + 80,640 − 40,320)	60,480	By Gross Profit (sales 53,35,680 − cost of sales 34,80,960)	18,54,720
To Salaries (84,000 − 16,800)	67,200
To Insurance (60,480 − 15,120)	45,360
To Petty Expenses	40,320
To Bad Debts	10,080
To Depreciation on Furniture	50,400
To Net Profit	15,80,880
	18,54,720		18,54,720

Dr	₹
To Rent (20,160 + 80,640 − 40,320)	60,480
To Salaries (84,000 − 16,800)	67,200
To Insurance (60,480 − 15,120)	45,360
To Petty Expenses	40,320
To Bad Debts	10,080
To Depreciation on Furniture	50,400
To Net Profit	15,80,880
	18,54,720
Cr	₹
By Gross Profit (sales 53,35,680 − cost of sales 34,80,960)	18,54,720
	18,54,720

Sales = 31,92,000 + 21,84,000 − allowances 40,320 = 53,35,680. Cost of sales = opening stock 8,60,160 + goods from H.O. at cost 30,91,200 (38,64,000 × 4/5) + purchases 8,73,600 (cash 5,04,000 + credit 3,69,600) − closing stock 13,44,000 = 34,80,960. The net profit agrees with the Branch Account.

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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