Question 4
Branch Accounts (Stock and Debtors System)
18 marks
- Time to write
- About 36 minutes
- Topic
- Branch accounts
- Notes
- Crux notes
Question
Question 4 · 18 marksPrabhat Ltd. Lucknow, a Trading company, has a Branch at Kanpur.. All the purchases are made by the H.O., and the goods sent to the Branch are invoiced at the selling price, which is 20% above cost. The sales at the Branch are on credit. The Branch expenses are paid by the H.O., and all the cash received by the Branch is remitted to the H.O. All the Branch transactions are recorded in the books of the head office.
The following information is provided to you. ₹
| Branch stock (at cost to Branch) on 1-4-2023 | ₹93,600 |
|---|---|
| Branch Debtors on 1-4-2023 | ₹66,950 |
The transactions during the year 2023-2024 were
| Goods sent to Branch at invoice price | ₹8,43,960 |
|---|---|
| Returns from Branch to H.O. at invoice price | ₹16,692 |
| Branch Sales | ₹8,78,280 |
| Return from customers to Branch | ₹9,204 |
| Cash received from Branch Debtors | ₹8,54,048 |
| Discount allowed to Branch Debtors | ₹36,790 |
| Branch expenses paid | ₹1,04,702 |
The Branch stock at 31st March, 2024 (at invoice price) was ₹51,012, and the expenses outstanding on that date were ₹1,300
You are required to Prepare the Branch stock Account, the Branch Debtors Account, the Branch Expenses Account and the Branch Profit and Loss Account in the ledger of the Head Office for the year ending 31.3.2024.
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
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
- "Branch stock (at cost to Branch)" is read as the branch's own cost, which is invoice price, so it is not grossed up.
- The figures leave an unexplained shortage of stock (₹780 at invoice price in our version). No normal loss is stated, so it is treated as an abnormal loss: its loading goes to the Branch Adjustment Account and its cost to the Branch Profit and Loss Account.
- No Branch Adjustment Account is asked for; the gross profit is worked out in one, as a working note.
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 the shortage found and split 5 marks 9 min
- 2 Branch Debtors Account 3 marks 5 min
- 3 Branch Expenses Account outstanding expenses and discount allowed 2 marks 4 min
- 4 Branch Adjustment working 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
Final answer
Check your own figures against these.
- Shortage
- ₹780 at invoice price (abnormal)
- Closing debtors
- ₹45,188
- Branch expenses, with discount
- ₹1,42,792
- Gross profit
- ₹1,44,846
- Net profit
- ₹1,404
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
- Goods are invoiced at cost plus 20%, so invoice price = cost × 6/5 and the loading is ⅙ of invoice price.
- The opening stock "at cost to Branch" is the branch's own cost, which is invoice price, so it enters Branch Stock as given (₹93,600) and is not grossed up. The DU text's tutorial note says stock "at cost to branch" is stock at invoice price.
- Credit sales are debited to Branch Debtors and returns from customers re-enter branch stock (Branch Stock Dr, Branch Debtors Cr), and returns from the branch to the H.O. reduce the goods sent: Goods Sent to Branch Dr, Branch Stock Cr.
- The Branch Stock Account leaves a shortage of ₹780 at invoice price. No normal loss is stated, so it is an abnormal loss: the loading (₹130) is debited to Branch Adjustment and the cost (₹650) to Branch Profit and Loss, with Branch Stock credited at invoice price.
- The gross profit is found in a Branch Adjustment Account (working note 1). The loading on the net goods sent is credited to it, the loading in opening stock is released into it and the loading in closing stock is reserved out of it.
- Discount allowed is debited to Branch Expenses (Branch Expenses A/c Dr, To Branch Debtors A/c), as the DU text records bad debts and discount allowed. The outstanding expenses are added to the expenses paid, and the total is transferred to Branch Profit and Loss.
Branch Stock Account (at invoice price)
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 93,600 | By Goods Sent to Branch A/c (returns to H.O.) | 16,692 |
| To Goods Sent to Branch A/c | 8,43,960 | By Branch Debtors A/c (sales) | 8,78,280 |
| To Branch Debtors A/c (returns from customers) | 9,204 | By Branch Adjustment A/c (shortage: loading) | 130 |
| By Branch Profit and Loss A/c (shortage: cost) | 650 | ||
| By Balance c/d | 51,012 | ||
| 9,46,764 | 9,46,764 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 93,600 |
| To Goods Sent to Branch A/c | 8,43,960 |
| To Branch Debtors A/c (returns from customers) | 9,204 |
| 9,46,764 | |
| Cr | ₹ |
| By Goods Sent to Branch A/c (returns to H.O.) | 16,692 |
| By Branch Debtors A/c (sales) | 8,78,280 |
| By Branch Adjustment A/c (shortage: loading) | 130 |
| By Branch Profit and Loss A/c (shortage: cost) | 650 |
| By Balance c/d | 51,012 |
| 9,46,764 |
Shortage at invoice price = 9,46,764 − 16,692 − 8,78,280 − 51,012 = ₹780; loading ⅙ = ₹130, cost = ₹650.
Branch Debtors Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 66,950 | By Bank A/c (cash received) | 8,54,048 |
| To Branch Stock A/c (sales) | 8,78,280 | By Branch Expenses A/c (discount allowed) | 36,790 |
| By Branch Stock A/c (returns from customers) | 9,204 | ||
| By Balance c/d | 45,188 | ||
| 9,45,230 | 9,45,230 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 66,950 |
| To Branch Stock A/c (sales) | 8,78,280 |
| 9,45,230 | |
| Cr | ₹ |
| By Bank A/c (cash received) | 8,54,048 |
| By Branch Expenses A/c (discount allowed) | 36,790 |
| By Branch Stock A/c (returns from customers) | 9,204 |
| By Balance c/d | 45,188 |
| 9,45,230 |
Branch Expenses Account
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Bank A/c (expenses paid) | 1,04,702 | By Branch Profit and Loss A/c | 1,42,792 |
| To Outstanding Expenses A/c | 1,300 | ||
| To Branch Debtors A/c (discount allowed) | 36,790 | ||
| 1,42,792 | 1,42,792 |
| Dr | ₹ |
|---|---|
| To Bank A/c (expenses paid) | 1,04,702 |
| To Outstanding Expenses A/c | 1,300 |
| To Branch Debtors A/c (discount allowed) | 36,790 |
| 1,42,792 | |
| Cr | ₹ |
| By Branch Profit and Loss A/c | 1,42,792 |
| 1,42,792 |
Branch Profit and Loss Account for the year ended 31 March 2024
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Branch Expenses A/c | 1,42,792 | By Branch Adjustment A/c (gross profit) | 1,44,846 |
| To Branch Stock A/c (abnormal loss: cost of shortage) | 650 | ||
| To Net Profit → General Profit and Loss A/c | 1,404 | ||
| 1,44,846 | 1,44,846 |
| Dr | ₹ |
|---|---|
| To Branch Expenses A/c | 1,42,792 |
| To Branch Stock A/c (abnormal loss: cost of shortage) | 650 |
| To Net Profit → General Profit and Loss A/c | 1,404 |
| 1,44,846 | |
| Cr | ₹ |
| By Branch Adjustment A/c (gross profit) | 1,44,846 |
| 1,44,846 |
Working notes
Working notes
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Stock Reserve A/c (loading in closing stock, 51,012 × ⅙) | 8,502 | By Stock Reserve A/c (loading in opening stock, 93,600 × ⅙) | 15,600 |
| To Branch Stock A/c (loading on shortage) | 130 | By Goods Sent to Branch A/c (loading on net goods, 8,27,268 × ⅙) | 1,37,878 |
| To Branch Profit and Loss A/c (gross profit) | 1,44,846 | ||
| 1,53,478 | 1,53,478 |
| Dr | ₹ |
|---|---|
| To Stock Reserve A/c (loading in closing stock, 51,012 × ⅙) | 8,502 |
| To Branch Stock A/c (loading on shortage) | 130 |
| To Branch Profit and Loss A/c (gross profit) | 1,44,846 |
| 1,53,478 | |
| Cr | ₹ |
| By Stock Reserve A/c (loading in opening stock, 93,600 × ⅙) | 15,600 |
| By Goods Sent to Branch A/c (loading on net goods, 8,27,268 × ⅙) | 1,37,878 |
| 1,53,478 |
Net goods sent = 8,43,960 − 16,692 = ₹8,27,268.
Working notes
Gross profit is the loading on the goods actually sold: net sales (8,78,280 − 9,204) ₹8,69,076 × ⅙ = ₹1,44,846, the same figure as the Branch Adjustment Account. At cost: opening stock 78,000 + net goods sent 6,89,390 − closing stock 42,510 − cost of shortage 650 = cost of sales ₹7,24,230; net sales 8,69,076 − 7,24,230 = ₹1,44,846.
Result: shortage ₹780 at invoice price (abnormal) · closing debtors ₹45,188 · branch expenses, with discount, ₹1,42,792 · gross profit ₹1,44,846 · net profit ₹1,404.
The other readings, and their figures
- Opening stock read as H.O. cost and grossed up (₹93,600 × 1.2 = ₹1,12,320): the stock account would then show a shortage of ₹19,500 at invoice price, and the branch a net loss of ₹14,196. A shortage that size has no support in the question, which is one reason the branch's own cost (invoice price) is the reading used.
- Shortage treated as a normal loss (full ₹780 to Branch Adjustment): gross profit ₹1,44,196 and the same net profit of ₹1,404, with nothing in Branch Profit and Loss for the shortage.
Where the 18 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Branch Stock Account, with the shortage found and split | 5 |
| 2 | Branch Debtors Account (closing debtors ₹45,188) | 3 |
| 3 | Branch Expenses Account (outstanding expenses and discount allowed) | 2 |
| 4 | Branch Adjustment working (gross profit ₹1,44,846) | 4 |
| 5 | Branch Profit and Loss Account (net profit ₹1,404) | 4 |
| Total | 18 |
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