Question 4 OR
Branch Account and Goods Sent to Branch Account (Debtors System)
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 OR · 18 marksVikas Ltd Indore invoice goods to its Bhopal Branch at cost plus 25%. Head office meets all the branch's expenses, and the cash the branch collects is sent to head office. From the information below, prepare Branch Account and Goods sent to Branch A/c in Head office's books:
| Branch Stock at Invoice Price 1-4-2023 | 48,000 | |
|---|---|---|
| Branch Debtors on 1-4-2023 | 60,000 | |
| Branch Furniture on 1-4-2023 | 96,000 | |
| Petty Cash on 1-4-2023 | 7,200 | |
| Salary due for March 2023 | 9,600 | |
| Goods sent to Branch during the year | 4,80,000 | |
| Goods returned by Branch to H.O | 12,000 | |
| Goods returned by Customers to Branch | 9,600 | |
| Loss of goods in transit at invoice Price | 24,000 | |
| Cash Sales | 1,68,000 | |
| Cash received from customers | 2,16,000 | |
| Goods Spoiled at Invoice Price(normal) | 9,600 | |
| Bad Debts | 2,400 | |
| Discount allowed | 4,800 | |
| Petty expenses incurred by Branch | 4,800 | |
| Cheque received from H.O for: | ||
| Salary @ 9,600 p.m | 1,15,200 | |
| Rent | 24,000 | |
| Petty Cash | 7,200 | |
| Equipment | 1,20,000 | 2,59,200 |
| Branch Debtors on 31-3-2024 | 72,000 | |
| Branch Stock | ? | |
| Depreciation on Furniture and Equipment @10% |
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
- prepare Branch AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.
What the paper leaves open
- The equipment of ₹1,20,000 bought by H.O. cheque has no date; a full year's depreciation at 10% is charged on it.
- Nothing is said about salary outstanding at the end of the year, so none is accrued.
- The branch stock at the end is not given; it is worked out from the stock at invoice price.
- The loss of goods in transit is abnormal; the spoilage the paper calls normal is absorbed.
Write it in this order
- Read the data; tick every adjustment as you plan it 2 min
- 1 Credit sales and closing stock worked out 4 marks 7 min
- 2 Branch Account: opening and closing items, stock reserve 6 marks 11 min
- 3 Loss in transit, normal spoilage, salary, depreciation 4 marks 7 min
- 4 Goods Sent to Branch Account 2 marks 4 min
- 5 Net result, with the proof on cost 2 marks 3 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
- Under the Debtors System the H.O. keeps a nominal Branch Account to find the branch's profit or loss. Goods are at invoice price (cost + 25%; loading one-fifth); the loading is removed from the net goods sent and from the stocks through the stock reserve.
- Credit sales (balancing figure of the debtors) = closing 72,000 + cash received 2,16,000 + bad debts 2,400 + discount 4,800 + returns 9,600 − opening 60,000 = ₹2,44,800.
- Closing stock at invoice price = 48,000 + 4,80,000 − 12,000 + 9,600 − loss in transit 24,000 − normal spoilage 9,600 − cash sales 1,68,000 − credit sales 2,44,800 = ₹79,200.
- The loss in transit is abnormal: its cost (₹19,200) is taken out of the Branch Account to the General Profit and Loss Account (its loading is inside the loading on net goods). The normal spoilage stays in the branch's cost.
- Salary: the twelve monthly cheques (₹1,15,200) include March 2023's ₹9,600 due at the start, an opening liability; no salary outstanding at the end is stated, so none is accrued.
- Depreciation at 10%: furniture 9,600; equipment, with no purchase date, a full year: 12,000.
Branch Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d: Stock (invoice price) | 48,000 | By Balance b/d: Salary due (March 2023) | 9,600 |
| To Balance b/d: Debtors | 60,000 | By Stock Reserve (loading on opening stock) | 9,600 |
| To Balance b/d: Furniture | 96,000 | By Goods Sent to Branch (returns) | 12,000 |
| To Balance b/d: Petty Cash | 7,200 | By Goods Sent to Branch (loading on 4,68,000) | 93,600 |
| To Goods Sent to Branch | 4,80,000 | By Bank (cash sales and collections remitted) | 3,84,000 |
| To Bank: Salary | 1,15,200 | By General Profit and Loss A/c (goods lost in transit, at cost) | 19,200 |
| To Bank: Rent | 24,000 | By Balance c/d: Stock (invoice price) | 79,200 |
| To Bank: Petty Cash | 7,200 | By Balance c/d: Debtors | 72,000 |
| To Bank: Equipment | 1,20,000 | By Balance c/d: Petty Cash (7,200 + 7,200 − 4,800) | 9,600 |
| To Stock Reserve (loading on closing stock) | 15,840 | By Balance c/d: Furniture (96,000 − 10%) | 86,400 |
| By Balance c/d: Equipment (1,20,000 − 10%) | 1,08,000 | ||
| By Net Loss → General Profit and Loss A/c | 90,240 | ||
| 9,73,440 | 9,73,440 |
| Dr | ₹ |
|---|---|
| To Balance b/d: Stock (invoice price) | 48,000 |
| To Balance b/d: Debtors | 60,000 |
| To Balance b/d: Furniture | 96,000 |
| To Balance b/d: Petty Cash | 7,200 |
| To Goods Sent to Branch | 4,80,000 |
| To Bank: Salary | 1,15,200 |
| To Bank: Rent | 24,000 |
| To Bank: Petty Cash | 7,200 |
| To Bank: Equipment | 1,20,000 |
| To Stock Reserve (loading on closing stock) | 15,840 |
| 9,73,440 | |
| Cr | ₹ |
| By Balance b/d: Salary due (March 2023) | 9,600 |
| By Stock Reserve (loading on opening stock) | 9,600 |
| By Goods Sent to Branch (returns) | 12,000 |
| By Goods Sent to Branch (loading on 4,68,000) | 93,600 |
| By Bank (cash sales and collections remitted) | 3,84,000 |
| By General Profit and Loss A/c (goods lost in transit, at cost) | 19,200 |
| By Balance c/d: Stock (invoice price) | 79,200 |
| By Balance c/d: Debtors | 72,000 |
| By Balance c/d: Petty Cash (7,200 + 7,200 − 4,800) | 9,600 |
| By Balance c/d: Furniture (96,000 − 10%) | 86,400 |
| By Balance c/d: Equipment (1,20,000 − 10%) | 1,08,000 |
| By Net Loss → General Profit and Loss A/c | 90,240 |
| 9,73,440 |
Goods Sent to Branch Account
2 marks| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Branch Account (returns) | 12,000 | By Branch Account (goods sent) | 4,80,000 |
| To Branch Account (loading on net goods) | 93,600 | ||
| To Purchases / Trading Account (cost of net goods) | 3,74,400 | ||
| 4,80,000 | 4,80,000 |
| Dr | ₹ |
|---|---|
| To Branch Account (returns) | 12,000 |
| To Branch Account (loading on net goods) | 93,600 |
| To Purchases / Trading Account (cost of net goods) | 3,74,400 |
| 4,80,000 | |
| Cr | ₹ |
| By Branch Account (goods sent) | 4,80,000 |
| 4,80,000 |
Proof on cost. Net sales 1,68,000 + 2,44,800 − 9,600 = 4,03,200; cost of sales (48,000 + 4,68,000 − 79,200 − 24,000) × 4/5 = 3,30,240; gross profit 72,960. Expenses: salary 1,05,600, rent 24,000, petty 4,800, bad debts 2,400, discount 4,800, depreciation 21,600 = 1,63,200. Net loss ₹90,240, as in the Branch Account. With half a year's depreciation on the equipment instead, the loss would be ₹84,240.
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Credit sales and closing stock worked out | 4 |
| 2 | Branch Account: opening and closing items, stock reserve | 6 |
| 3 | Loss in transit, normal spoilage, salary, depreciation | 4 |
| 4 | Goods Sent to Branch Account | 2 |
| 5 | Net result, with the proof on cost | 2 |
| Total | 18 |
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