Advanced financial accounting - Lecture 13: Branch accounting. The main topics covered in this chapter include: opening stock (at cost); goods sent to branch (at invoice price); margin rate; lahore branch in the books of head office; accounting entries (abnormal loss);... Please refer to the lecture for details!
Advanced Financial Accounting FIN611 Mian Ahmad Farhan Lecture13 Branch Accounting Branch Account Opening stock (At cost) Goods sent to branch (At invoice price) xxx xxx Reversal of loading for goods sent to branch Closing stock xxx xxx Margin Rate Sales Less Cost Gross Profit 100% 80% 20% Cost Rs. 1,600 Gross profit = 1,600 / 80 x 20 = 400 Sales = 1,600 + 400 Sales = 2,000 Gross profit = 2,000 x 20% = 400 Sales = Invoice price Cost = Cost Gross profit = Loading Question Opening stock at invoice price (1 Jan, 2008) Goods sent to branch at invoice price Remittance from branch Cash paid by the head office for sundry expenses Return from the branch invoice price Closing stock at invoice price Rs. 3,000 Rs. 24,000 Rs. 25,000 Rs. 4,500 Rs. 150 Rs. 8,000 Working Cost of opening stock = 3,000 / 125 x 100 = 2,400 Cost of closing stock = 8,000 / 125 x 100 = 6,400 Goods sent to branch = 24,000 Goods return from HO = 150 23,850 Invoice price of the goods sent to branch netted off by good return from HO = 23,850 Loading = 23,850 / 125 x 25 = 4,770 Lahore Branch In the books of Head Office Opening stock Goods sent to branch Cash send to branch for expenses Profit/Loss 2,400 24,000 4,500 5,420 36,320 Cash received from HO Goods return to HO Goods sent to branch (Reverse of loading) Closing stock 25,000 150 4,770 6,400 36,320 Normal Loss Normal loss has no effect on Debtor system and Income Statement system. Accounting Entries (Abnormal Loss) At the time of loss Abnormal loss A/c 4,000 Branch A/c 4,000 Insurance claim Insurance claim A/c 3,500 Abnormal loss A/c 3,500 Profit & loss Profit & loss A/c 500 Abnormal loss A/c 500 Stock & Debtor System Branch stock account Branch debtors account Goods sent to branch account Branch stock reserve account Branch expenses account Branch adjustment account Branch profit & loss account Journal Entries Goods sent to branch Branch stock A/c xxx Goods sent to branch A/c (Invoice price) xxx Goods sold by branch A Cash sales Branch cash A/c Branch stock A/c B Credit sales Branch debtors A/c Branch stock A/c xxx xxx xxx xxx Journal Entries Cash received from debtor Cash A/c Branch debtors A/c xxx xxx Goods returned by customer Branch stock A/c xxx Goods sent to branch A/c Bad debts and Discount debtors Branch Exp. A/c Branch debtors xxx Bad debts Bad debts A/c Debtors A/c Branch Debtors Account Opening balance b/f Branch stock (Credit sales) xxx xxx xxx Cash (Cash received from debtors) Branch Exp. (Bad debts ) Discount allow. (Bad debts ) Branch stock (Stock return) Closing balance xxx xxx xxx xxx xxx xxx Journal Entries Branch return goods HO Goods sent to branch A/c xxx Branch stock A/C xxx (Invoice price) Stock theft Branch adjustment A/c xxx Branch stock A/c xxx Cash sent by HO to branch for expenses Branch Exp. xxx Cash / Bank A/c xxx Branch stock Opening balance (Invoice price) Goods sent to branch xxx xxx Branch debtors /cash (Sales of goods) xxx Branch debtors (Sales return) xxx xxx Branch Expenses Branch debtors (Bad debts) Branch debtors (Discount on debtors) Cash/Bank (Cash sent to branch for expenses) xxx xxx Balance (Transfer to branch adjustment A/c) xxx xxx xxx xxx Journal Entries Transfer branch exp. to branch adjustment A/c Branch adjustment A/c xxx Branch Exp. A/c xxx Surplus in Branch stock Branch stock A/c xxx Branch adjustment A/c xxx Branch Stock Account Goods send to branch 120 Balance 30 150 Branch debtors 150 150 ... Goods sent to? ?branch? ? Branch? ?stock A/c xxx Goods sent to? ?branch? ?A/c (Invoice price) xxx Goods sold by? ?branch? ? A Cash sales Branch? ?cash A/c Branch? ?stock A/c B Credit sales Branch? ?debtors A/c Branch? ?stock A/c... Journal Entries Transfer? ?branch? ?exp. to? ?branch? ?adjustment A/c Branch? ?adjustment A/c xxx Branch? ?Exp. A/c xxx Surplus in? ?Branch? ?stock Branch? ?stock A/c xxx Branch? ?adjustment A/c xxx Branch? ?Stock Account ... Journal Entries Branch? ?return goods HO Goods sent to? ?branch? ?A/c xxx Branch? ?stock A/C xxx (Invoice price) Stock theft Branch? ?adjustment A/c xxx Branch? ?stock A/c xxx Cash sent by HO to? ?branch? ?for expenses