BRANCH ACCOUNTS

There are two ways of accounting for a branch and these are:
1. The head office maintains all the accounting records
2. Each branch maintains its own full accounting system

Where the head office maintains all the accounts

A branch stock account will be opened in columnar form in order to calculate profit or loss and stock
loss. The branch stock account would consist of 2 columns, the cost price column and the selling price
column. The cost price column serves as the income statement as it is used to compute profit or loss
whereas the selling price column is meant for the computation of stock loss.

It is worth remembering the following points

 Sales and sales returns are entered in both columns at selling price
 Goods returned to head office by branch customers are accounted for by debiting the profit
element (mark-up) to the branch stock account (cost column) to cancel the profit previously
recognised.

Alternatively, a branch stock adjustment account can be used to calculate profit or loss. It is an account
for recording the profit element and items that affect profit. The branch stock account will have to be
prepared at selling price only.

Question 1

B Ltd is situated in Victoria Falls and has a branch in Gweru. B Ltd purchases goods for the branch and
transfers the goods to the branch at a uniform mark up of 50%. The branch sells goods on cash basis but
also has credit customers who are required to settle their accounts direct to the head office in Victoria
Falls.

The following information is available for the month of August 2012

$
At 1 August 2012:
Stock at branch (at cost price) 8 000
Branch debtors 865
During the month to 31 August 2012:
Goods sent to branch (at cost) 12 000
Goods returned by branch to head office (at cost) 800
Goods returned by customers to branch (at selling price) 150
Goods returned by customers to head office (at selling price) 240
Branch sales – Cash 10 000
- Credit 8 642
Cash remitted by customers to head office 8 400
At 31 August 2012:
Stock at branch (at cost) 6 662

1 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Requirement

The accounts in the books of B Ltd to record

i. Branch stocks
ii. Goods sent to branch
iii. Branch debtors
iv. Cash received
v. Trading account

Question 2

F Ltd maintains a head office in Bulawayo which purchases goods on behalf of its branch in Gwanda.
The head office sends the goods to the branch at selling price which is arrived at by adding mark-up of
1
33 %.
3
The branch sells goods on cash but also has credit customers who are required to settle their accounts
direct to the head office in Bulawayo.

The following information is available for the month of September 2012:

$
At 1 September 2012:
Stock at branch (at cost) 18 000
Branch debtors 1 200
During the month of September 2012:
Goods sent to branch (at cost) 54 000
Goods returned by branch to head office (at cost) 600
Goods returned by customers to branch (at selling price) 1 200
Goods returned by customers to head office (at selling price) 800
Branch sales - cash 25 000
- credit 42 000
Cash remitted by customers to head office 39 400
At 31 September 2012:
Stock at branch (at cost) 21 600

Requirement

Prepare the following accounts as they will appear in the books of F Ltd at 31 Sept 2012
a) Branch stock account
b) Goods sent to branch account
c) Branch debtors account
d) Cash received
e) Trading account

2 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Where each branch maintains full accounting records
A branch might be large enough to justify employing separate accounting personnel. The relationship
between a branch and the head office can be said to be that of a debtor and a creditor. Current accounts
are used to record the movement of resources between the head office and the branch.
The current account shows the branch as a debtor in the head office records, while the head office is
shown as a creditor in the branch’s records. It is necessary to have identical amounts of balances on the
current accounts so that they will cancel out each other when the combined SFP is prepared.

Question 3
The balances on certain accounts of a business on 31 December 2011 were
$
Land and buildings 120 000 Dr
Fixtures 43 000 Dr
Accumulated depreciation
 Land and buildings 9 000 Cr
 Fixtures 13 000 Cr
Bank 51 000 Dr

On that date the business accorded branch status to one of its outstations. The branch was given a set of
ledgers to be maintained independently of head office and the following transfers were made to it from
the head office ledger:
$
Land and buildings 40 000
Fixtures 13 000
Accumulated depreciation
 Land and buildings 4 000
 Fixtures 4 500
Bank 7 000

Post and balance the requisite accounts in the ledger of

a) The head office
b) The branch

Items in transit
It is possible for the balances in the HO and branch current accounts not to agree at the year end and
this may be due to 2 reasons
1) Cash in transit, cash which has been remitted to HO will have been recorded by the branch only
even though it is not yet received by the HO.
2) Goods in transit, goods which have been sent by the HO but not yet received by the branch will
have been recorded by the HO only.
To reconcile the 2 current accounts, it is common practice for the HO to make adjusting entries in the
branch current account. This is because we are likely to find experienced accountants at the HO.

Unrealised profit in inventory

When goods are transferred by the HO to the branch at selling price and some remain unsold at the
branch at the year end, the unrealised profit must be provided for in the HO SCI by treating the amount
as an expense if there is an increase in provision for unrealised profit and as income if there is a
decrease in provision for unrealised profit.

3 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

The full amount of the provision for unrealised profit at the year-end is deducted from the inventory in
the SFP.

Question 4
Root Ltd’s head office is in Harare .The company has a branch in Kwekwe. Goods purchased by head
office are sold to the branch at cost plus 20%. The trial balance extracted from the head office and the
branch books at 30 Sept 2012 were as follows

Head office Branch

Debit Credit Debit Credit
$ $ $ $
Sales 280 000 172 000
Purchases 180 000 123 200
Stock at cost or at cost to branch at 1 Oct 2011 12 000 7 200
Goods sent to branch 132 800
Administrative expenses 108 000 7 200
Distribution costs 24 000 9 600
Profit and loss account at 1 Oct 2011 22 400
Provision for unrealised profit on stock held by the branch 1 200
Non-current assets at net book value 306 400 30 400
Debtors 12 000 16 000
Creditors 18 000 4 000
Cash at bank and in hand 15 200 1 600
Branch current account 36 800
Head office current account 19 200
Called up share capital (ordinary shares of $1 each) 240 000
694 400 694 400 195 200195 200
Additional information
1) Stock at 30 Sept 2012 was valued as follows;
Head office at cost 16 000
Branch at cost to branch 19 200
Goods in transit to branch at cost to branch 9 600
2) At 30 Sept 2012 the branch had transferred $8 000 to the head office’s bank account but as at
that date no record had been made in the head office’s books of accounts.

Required
a) The head office, the branch, and combined Income statement for the year ended to 30 Sept
2012 , and
b) The combined SFP as at that date.

4 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Question 5
A trading business with a head office in Hull operates a branch shop in Grimsby. The trial balances as at
30 November 2012 were
Head office Branch
$ $
Debits
Non-current assets 38 000 15 400
Inventory at 1 December 2011
- HO (at cost) 28 000
- Branch (@selling price) 17 000
Trade receivables 17 448 3 904
Bank and Cash 30 614 5 768
Purchases 195 900
Remittances to Hull 112 860
Goods from Hull (@ selling price) 69 940
General expenses 34 000 20 000
Grimsby branch current account 126 532
470 494 244 872
Credits
Goods to Grimsby (@ selling price) 71 540
Remittances from Grimsby 112 380
Sales 194 020 119 400
Trade payables 16 234 540
Hull current account 124 932
Capital at 1 December 2011 74 620
Provision for unrealised profit 1 December 2011 1 700
470 494 244 872
Notes
a) Hull invoices goods supplied to Grimsby branch at cost plus one ninth.
b) At 30 November 2012
Inventory at HO (@ cost) 25 400
Inventory at Branch (@ selling price) 9 600
Inventory in transit (@ selling price) 1 600
Cash in transit to HO 480
c) Provide for depreciation on Non-current assets at 20% per annum on the reducing balance.
Requirement
a) The head office, the branch, and combined Income statement for the year ended to 30
November 2012
b) The combined SFP as at that date.

Question 4
John Ncube has been trading for a number of years through the main premises at Harare and a branch
at Bulawayo. All purchases are made by the head office and goods are “invoiced” to the branch at the
expected selling price, that is, cost plus 25%. The details available regarding Ncube’s trading are:

5 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Opening stock at branch (at selling price) on 1 January 2006 12 000
During the year to 31 December 2006
Goods sent to branch (at cost) 57 840
Cash sales by the branch 58 500
Credit sales by the branch 9 840
Returns to head office (at cost) 2 000

All records are maintained by head office

Required
1. General Journal entries accounting for the above transactions (10 marks)
2. Open and write up (as far as possible)
i. The branch stock control account
ii. The branch mark – up account
iii. The goods sent to branch account and
iv. The branch debtors in the head office books (11 marks)

6 Compiled by T T Herbert (0773 038 651 / 0712 560 772)