Question 4 (b)

Branch Account and Goods Sent to Branch Account (Debtors System)

12 marks

Time to write
About 24 minutes
Topic
Branch accounts
Notes
Crux notes

Question

Question 4 (b) · 12 marks

A head office in Lucknow has a branch in Kanpur, to which the head office invoices goods at cost plus 25%. From the particulars below, prepare Branch Account and goods sent to branch account in the head office's books:

Opening Stock ₹30,000; Opening Debtors ₹28,800; Goods received from the head office (Lucknow) ₹96,000; Cash Sales ₹38,400; Cash received from Debtors ₹70,800; Goods returned to head office ₹4,800; Cash received for expenses ₹34,800; Stock at the end ₹36,000; Debtors at the end ₹54,000.

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

24 minfor 12 marks

Read from the question

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

What the paper leaves open

  1. The opening and closing stock and the goods received are read as at invoice price, since goods sent and branch stock are taken at invoice price unless stated otherwise; the loading (one-fifth of invoice price) is removed through the stock reserve and goods-sent entries.
  2. Credit sales are not given; they are the balancing figure of the debtors.
  3. The cash received for expenses is taken as spent in full.

Write it in this order

  1. Read the data; tick every adjustment as you plan it 2 min
  2. 1 Credit sales and the treatment of stock at invoice price 3 marks 5 min
  3. 2 Branch Account 6 marks 10 min
  4. 3 Goods Sent to Branch Account 3 marks 5 min
  5. Check: every adjustment used, both sides agree, dates in 2 min

Short on time? Step 2 carries 6 of the 12 marks: guard its minutes.

Try it first. About 24 minutes for 12 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

  1. Under the Debtors System the H.O. keeps a nominal Branch Account to find the branch's profit.
  2. Goods sent and branch stock are taken at invoice price unless stated otherwise, so the opening and closing stock and the goods received are at invoice price (cost + 25%; loading one-fifth). The loading is removed through the stock reserve and the Goods Sent to Branch Account.
  3. The DU worked example lays out the Branch Account this way: the stock reserve on closing stock is debited, the reserve on opening stock and the loading on goods sent are credited, and the net profit goes to the General Profit and Loss Account; credit sales come from a memorandum debtors account. Credit sales = closing debtors 54,000 + cash received 70,800 − opening debtors 28,800 = ₹96,000. The cash received for expenses (₹34,800) is taken as spent in full.

Branch Account

Dr₹Cr₹
To Balance b/d: Stock30,000By Stock Reserve (loading on opening stock)6,000
To Balance b/d: Debtors28,800By Goods Sent to Branch (returns)4,800
To Goods Sent to Branch96,000By Goods Sent to Branch (loading on 91,200)18,240
To Bank (cash for expenses)34,800By Bank (cash sales)38,400
To Stock Reserve (loading on closing stock)7,200By Bank (cash received from debtors)70,800
To Net Profit → General Profit and Loss A/c31,440By Balance c/d: Stock36,000
By Balance c/d: Debtors54,000
2,28,2402,28,240
Dr₹
To Balance b/d: Stock30,000
To Balance b/d: Debtors28,800
To Goods Sent to Branch96,000
To Bank (cash for expenses)34,800
To Stock Reserve (loading on closing stock)7,200
To Net Profit → General Profit and Loss A/c31,440
2,28,240
Cr₹
By Stock Reserve (loading on opening stock)6,000
By Goods Sent to Branch (returns)4,800
By Goods Sent to Branch (loading on 91,200)18,240
By Bank (cash sales)38,400
By Bank (cash received from debtors)70,800
By Balance c/d: Stock36,000
By Balance c/d: Debtors54,000
2,28,240

Goods Sent to Branch Account

3 marks
Dr₹Cr₹
To Branch Account (returns)4,800By Branch Account (goods sent)96,000
To Branch Account (loading on net goods)18,240
To Purchases / Trading Account (cost of net goods sent)72,960
96,00096,000
Dr₹
To Branch Account (returns)4,800
To Branch Account (loading on net goods)18,240
To Purchases / Trading Account (cost of net goods sent)72,960
96,000
Cr₹
By Branch Account (goods sent)96,000
96,000

Proof on cost. Sales 38,400 + 96,000 = 1,34,400; cost of sales = (30,000 + 91,200 − 36,000) × 4/5 = 68,160; gross profit 66,240 − expenses 34,800 = ₹31,440. Read wholly at cost, with no loading entries, the account would show ₹14,400.

Where the 12 marks sit

#ComponentMarks
1Credit sales and the treatment of stock at invoice price3
2Branch Account (net profit ₹31,440)6
3Goods Sent to Branch Account3
Total12
Keyboard: ← → previous and next question, / search

Report a problemopens an email to admin@getkunji.com with the question ID887-Q4balready filled in.