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Branch Account

Branch Account. Branch. A trading company may try to expand its business by opening BRANCHES as another establishment of the company in different locations. Account kept by Branch. Account Kept by Branch.

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Branch Account

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  1. BranchAccount

  2. Branch • A trading company may try to expand its business by opening BRANCHES as another establishment of the company in different locations

  3. Account kept by Branch

  4. Account Kept by Branch • Head office and Branch will open a full set of books to record their won transactions instead of branch books are kept by the Head office

  5. In Head Office books: • Branch Current Account is opened to record transactions between the Head Office and the Branch • In Branch books: • Head Office Current Account is opened to record transactions between them

  6. HO’s Book: Branch Current $ $ Bal b/f X Goods in Transit X Remittance from branch X Branch net profit X Cash in Transit X Bal c/f X X X Branch’s Book: HO Current $ $ Remittance to HO X Bal b/f X Bal c/f X Net profit X X X

  7. Goods in Transit (GIT) • Goods were sent by the Head Office before the end of the financial period, but received by the branch after the end of the financial period • GIT =Goods Sent to Branch – Goods received from HO

  8. Remittances/Cash in Transit (CIT) • The remittance or cash was remitted by the branch before the end of the financial period, but was received by the Head office after the end of the financial period • CIT= Remittance to Head Office – Remittance from Branch

  9. Preparation of the Final Accounts • Separate trading and profit and loss accounts and balance sheets would be prepared for the head office and the branch(es)

  10. Inter-company transactions • It would not be transferred to the total column of the trading and profit and loss account and the balance sheet • For example, goods sent to the branch, goods from the head office, service overheads charged by the head office to the branch, head office current account, branch current account provision for unrealized profit

  11. Example 2

  12. Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Cash and Bank 114300 80800 Debtors 360000 40000 HO Current 146000 Branch Current 194000 Fixed assets 1532000 152000 Stock,1Jan 1997 60000 36000 Creditors 96000 10000 Prov. For dep 38300 3800 Remittances to HO 11000 Remittances from Branch 10000 Capital 1200000

  13. HO Branch • $ $ $ $ • Retained Profits 112000 • Purchases and Sales 900000 1400000 860000 • Good sent to branch 664000 • Good from HO 616000 • Selling Expenses 120000 48000 • Service Charged Received 5000 • Administrative Expenses 245000 36000 • 3525300 3525300 1019800 1019800 • Additional information: • Goods purchased by the HO are sent to the branch at cost • Stock at 31 Dec 1997: HO $80000; Branch $10600 • Depreciation is to be provided at 10% on cost per annum • Administrative expenses include an annual charge of $5000 • for services rendered by the head office • Required: • Prepare final accounts of HO and Branch for the year ended 31Dec • 1997

  14. Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales 1400 860 2260 Good Sent to Branch 664 - - 2064 860 2260 Less COGS Opening Stock 60 36 96 Purchases 900 - 900 Goods from HO - 616 - 80+10.6+48 960 652 996 Less Closing stock(WK1)80 880 10.6 641.4 138.6 857.4 Gross profit 1184 218.6 1402.6 Add: Service charges received 5 - - Less: Depreciation 153.2 15.2 168.4 Selling expense 120 48 168 Admin. Exp.(WK2)245 518 36 99.2 276 612.4 Net profit 670.8 119.4 790.2 245+36-5

  15. WK1: The total closing stock should be included Goods in transit as GIT are still unsold goods at year end but those goods are transported on the way => 80+10.6+48 = 138.6 Wk2: The total administrative expenses should deduct the inter- Company service charges of $5000 => 24.5+36-5=276 Back

  16. HO’s Book: Branch Current $ $ Bal b/f 194000 Goods in Transit (664000-61600) 48000 Branch net profit 119400 Remittance from branch 10000 Cash in Transit (11000-10000) 1000 Bal c/f 254400 313400 313400 Branch’s Book: HO Current $ $ Remittance to HO 11000 Bal b/f 146000 Bal c/f 254400 Net profit 119400 265400 265400

  17. Balance Sheet as at 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Fixed Assets 1532 152 1684 Less provision for Dep 191.5 19 210.5 1340.5 133 1437.5 Current Assets Stock 80 10.6 138.6 Goods in Transit 48 - - Branch Current 254.4 - - 80+10.6+48 Debtors 360 40 400 Cash and Bank 114.3 80.8 196.1 Cash in Transit 1 - - 857.7 131.4 734.7 Less Current Liabilities 114.3+80.8+1 Creditors 96 10 106 Working Capital 761.7 121.4 628.7 2102.2 254.4 2102.2 Capital 1200 - 1200 112+670.8+119.4 Retained profit 902.2 - 902.2 Head Office Current - 254.4 - 212.2 254.4 2102.2

  18. Goods Sent to Branch at Mark-up

  19. Goods Sent to Branch at a Mark Up • The head office supplies goods to its branch with an invoice price at cost plus profit • Goods Sent to Branch a/c and Goods Received from HO a/c are valued at invoice price. • If there is unsold stock at the end of the accounting period, the unrealized profit-in-stock must be eliminated from the consolidated final accounts • A Provision for Unrealized Profit a/c will be opened to measure unearned profit included in the closing stock of the branch and reflect in the HO’s book

  20. Provision for Unrealized Profit =Stock at mark up* Mark up 100%+Mark up • Stock mark up= Closing stock at branch sent from HO + Goods in transit • Closing stock of branch include goods directly purchased from suppliers will not be concerned in the calculation of the provision of unrealized profit

  21. Account entries • Increase in Provision Dr P/L • Cr Provision for unrealized profit • Decrease in Provision Dr Provision for unrealized profit • Cr P/L • The increase or decrease in the provision should be entered • in the profit and loss a/c • The balance should be appear in the balance sheet under • Current Liabilities • The total stock= stock in HO+stock in branch+stock in transit • - provision for unrealized profit

  22. Example 3

  23. Goods sent form the head office are charged to the branch At cost plus 10% the closing stock was valued as follows: Date HO Branch Goods in transit 31 Dec 1991 80000 66000 22000 (1st year of business) 31 Dec 1992 96000 86900 5500 31 Dec 1993 84000 71500 4950 31 Dec 1994 108000 75900 550 Required Prepare Provision for unrealized profit account for 1992-1994

  24. Provision for unrealized profit 91 $ 91 $ Dec 31 Bal c/d 8000 (66000+22000*10/110 Dec 31 P/L 8000 92 92 Jan 1 Bal b/d 8000 Dec 31 Bal c/d 8400 (869000+5500)*10/110 Dec 31 P/L 400 8400 8400 93 93 Dec 31 P/L 1450 Jan 1 Bal b/d 8400 Dec 31 Bal c/d 6950 (71500+4950)*10/110 8400 8400 94 94 Dec 31 Bal c/d 6950 (75900+550)*10/110 Jan 1 Bal b/d 6950

  25. Stock Loss

  26. Accounting entries – abnormal Loss

  27. Example 4

  28. Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. All goods sold by branch are supplied by the HO at cost plus 10% Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Share Capital 260000 Profit and loss account 125000 HO Current 79500 Branch Current 85000 Fixed assets 345000 70000 Stock,1Jan 1997 48500 15400 Debtors/Creditors 60400 35000 14700 37200 Prov. For dep 13700 16400 Remittances to HO 26000 Remittances from Branch 22000

  29. HO Branch • $ $ $ $ • Bank and cash 15900 3100 • Purchases and Sales 255000 229700 44600 199700 • Good sent to branch 154000 • Good from HO 148500 • Provision for unrealized profit 1400 • Administrative Expenses 31000 10500 • 840800 840800 332800 332800 • Additional information: • Stock as at 31 Dec 1997 excluding goods in transit was valued at • followings: • Head office, at cost $32600 • Branch, at cost to branch • - received from HO $16500 • - own purchases $8000 • The branch stock at 31 Dec 1996 consisted wholly of goods • received from the head office

  30. On 20 Nov 1997 some goods received by the branch from the • head office were destroyed by fire. No entry has been made for • this loss. The cost of these goods to the branch was $11000 • Depreciation is to be provided on fixed asset at 2% per • annum on cost • Required • Prepare final accounts for HO and Branch separately as at 31 Dec • 1997

  31. Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales 229.7 199.7 429.4 Good Sent to Branch 154 - - 383.7 199.7 429.4 Less COGS Opening Stock (WK1) 48.5 15.4 62.5 Purchases 255 44.6 299.6 Goods from HO - 148.5 - 303.5 208.5 362.1 Less:Fire loss (WK2) - 11 10 16.5+8 Less Closing stock(WK3)32.6 270.9 24.5 173 60.6 291.5 Gross profit 112.8 26.7 137.9 Less: Depreciation 6.9 1.4 8.3 Fire loss - 11 10 Administrative 31 10.5 41.5 Prov for Unrealized profit 0.6 38.5 - 22.9 - 59.8 (1.5+5)-1.4 74.3 3.8 78.1

  32. WK1: HO and Branch value stock on different bases in this case. HO’s Stock is valued at cost; while Branch’s stock is valued at mark-up. Total opening stock should be recorded at cost price HO+Branch(at mark up) – Opening prov. for unrealized profit = 48.5+15.4+1.4 = 62.5 • WK2: • Fire loss in total column should be recorded at cost price rather • than mark-up price • Invoice price = Cost + Profit • Cost = Invoice Price – Profit = 1.1 – 1.1*10/110 = 10 Back

  33. WK3: Total closing stock should be included HO’s stock, Branch’s Stock and Goods in transit HO’s stock and Branch (own purchases)’s stock are valued at cost;while Branch (received from HO)’s stock and Goods in transit are valued at mark-up. Those goods should be adjusted at cost price Total closing stock should be included: 32.6+8+(16.5-16.5*10/110)+(1.1-1.1*10/110) = 60.6 Back

  34. WK4: Provision for unrealized profit Bal b/f 1400 P/L 600 Bal c/f 2000 (16500+5500)*10/110 2000 2000 Back

  35. Balance Sheet as at 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Fixed Assets 345 70 415 Less provision for Dep 20.6 17.8 38.4 324.4 52.2 376.6 Current Assets Stock 32.6 24.5 60.6 Goods in Transit 5.5 - - Branch Current(WK1) 57.3 - - Debtors 60.4 14.7 75.1 Cash and Bank 15.9 3.1 23 Cash in Transit 1 - - 175.7 42.3 158.7 Less Current Liabilities 15.9+31+4 Creditors 35 37.2 72.2 Prov for unrealized 2 - - profit Working Capital 138.7 5.1 86.5 463.1 57.3 463.1 Capital 260 - 260 12.5+74.3+3.8 Retained profit 203.1 - 203.1 Head Office Current WK2) - 57.3 - 463.1 57.3 463.1

  36. WK1: HO’s book: Branch Current Bal b/f 85000 Branch net profit 3800 Goods in transit 5500 Remittance from branch22000 Cash in transit (26000-22000) 4000 Bal c/f 57300 88800 88800 Wk2: Branch’s book: HO Current Remittance to HO 26000 Bal b/f 79500 Branch net profit 3800 Bal c/f 57300 833000 833000 Back

  37. Account kept by Head Office

  38. Account kept by HO • The branch do not keep their won records, the HO will keep all accounting records for the branch transactions

  39. Goods are invoiced to the Branch at cost plus profit Cost + Profit = Invoiced price Branch Stock Adjustment a/c Branch Stock a/c Goods Sent to Branch a/c The gross profit will be calculated in Branch Stock Adjustment account

  40. Example 5

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