INDEPENDENT BRANCH

Steps involved in preparing accounts of independent branch

  • Reconciliation
  • Adjustment
  • Incorporation
advance financial accounting  INDEPENDENT BRANCH

Reconciliation

Reconciliation of the balance of head office account appearing in the books of Branch with the balance of branch account appearing in the books of head office

Reasons of Difference The two balances might be different because of following reasons:

  1. Cash in transit
  2. Goods in transit
  3. Mistake committed by either party

NOTE: Accounting entry for reconciliation will be passed in the books of either party

Accounting Entries

Cash in transit

Cash in transit A/C Branch A/C or Head office A/C

Goods in transit

Goods in transit A/C Branch A/C or Head office A/C

Mistakes

Account to be rectified Branch A/C or Head office A/C

Branch A/C or Head office A/C Account to be rectified

Adjustments on the books of both parties

Certain informations are required to be adjusted in the books of both the parties (head office and branch). These include:

  1. Allocation of head office expense
  2. Depreciation on branch assets
  3. Inter branch transfers

Accounting Entries

Books of head office

Allocation of head office expense

Branch A/C Specific Expense A/C

Depreciation of branch assets

Branch A/C Provision for depreciation A/C

Inter branch transfers

Receiving Branch A/C Transferring Branch A/C

Books of branch

Allocation of head office expense

Specific Expense A/C Head office A/C

Depreciation of branch assets

Depreciation Expense A/C Head office A/C

Inter branch transfers Books of Transferring Branch

Head office A/C Goods returned to head office

Books of Receiving Branch

Goods received from head office Head office A/C Incorporation

Meanings:

Incorporation of branch trial balance into the books of head office. (Consolidation) Note: Accounting entries for incorporation are passed in the books of head office only

Accounting Entries

To incorporate Branch Cost of Goods Sold

Cost of Good Sold A/C Branch A/C

To incorporate Branch Sales

Branch A/C Trading A/C (Sales A/C)

To incorporate Branch Expenses

Profit & Loss A/C (Expenses) Branch A/C

To incorporate Branch other income

Branch A/C Profit & Loss A/C (income)

To incorporate Branch Assets

All assets (individually) Branch A/C

To incorporate Branch Liabilities

Branch A/C All Liabilities (individually)

Note: After passing the accounting entries for incorporation the branch account Appearing in the trial balance of head office will give Nil Balance.

Solved Question

The following is the Trial Balance of Meerut Branch as on 31st December, 2006:

Dr. (Rs.) Cr. (Rs.) Dr. (Rs.) Cr. (Rs.)
Karachi head office Stock 1st January, 2006 Purchases Goods received from h/office Sales Goods supplied to h/office Salaries 3,240 6,000 97,800 19,000 1,38,000 6,000 4,500 Debtors Creditors Rent Sundry office expenses Cash at bank Furniture Depreciation on furniture 3,700 1,960 1,470 1,780 6,000 400 1,850
Total 1,45,850 1,45,850

Stock at branch on 31st December, 2006 was valued at Rs. 7,700. Meerut Branch Account in the head office books on 31st December, 2006 stood at Rs. 460 (debit balance). On 28th December, 2006 the head office forwarded goods of the value of Rs. 3,700 to the branch where they were received on 3rd January, 2007. Prepare Memorandum Branch Trading and Profit and Loss Account and pass necessary Journal Entries to incorporate Meerut branch balances and prepare Meerut Branch Account in the head office books.

Solution:

Memorandum Meerut Branch Trading and Profit and Loss Account For the year ended 31st December, 2006

Particulars To opening stock To purchases To goods received from H/O To gross profit c/d Rs. 6,000 97,800 19,000 28,900 1,51,700 Particulars By sales By goods supplied to H/O By closing stock Rs. 1,38,000 6,000 7,700 1,51,700
To salaries To rent 4,500 1,960 By gross profit b/d 28,900
70
To sundry office expenses To depreciation on furniture To net profit 1,470 400 20570 28,900 28.900
In the books of Head Office Journal Dr. Cr.
Date Particulars L.F. Rs. Rs.
2006 Meerut Branch A/c 20,570
Dec.31 To General Profit & Loss A/c (being the incorporation of branch net profit) 20,570
Goods in Transit A/c 3,700
To Meerut Branch A/c (Being goods sent to branch on 28th December, received on 3rd January, 2007) 3,700
Meerut Branch Furniture A/c 6,000
Meerut Branch Debtors A/c 3,700
Meerut Branch Stock A/c 7,700
Meerut Branch Cash A/c 1,780
To Meerut Branch A/c (Being the incorporation of branch assets) 19,180
Meerut Branch A/c 1,850
To Meerut Branch Creditors A/c (Being the incorporation of branch liability) 1,850

In the books of the Head Office Meerut Branch Account

Dr. Cr.

Date Particulars Rs. Date Particulars Rs.
31.12.2006 To balance c/d To Meerut Branch Creditors A/c To general Profit & Loss 460 1,850 20,570 31.12.2006 By goods in Transit A/c By Meerut Branch Assets A/c 3,70019,180 22,800
22,800
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