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Advance Financial Accounting (FIN-611)
VU
LESSON#15
INDEPENDENT BRANCH
Steps involved in preparing accounts of independent branch
Reconciliation
Adjustment
Incorporation
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
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Advance Financial Accounting (FIN-611)
VU
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)
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Advance Financial Accounting (FIN-611)
VU
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.
Cr.
Dr.
Cr.
(Rs.)
(Rs.)
(Rs.)
(Rs.)
Karachi head office
3,240
Debtors
3,700
Stock 1st January, 2006
6,000
Creditors
1,850
Purchases
97,800
Rent
1,960
Goods received from
19,000
Sundry office
1,470
h/office
expenses
Sales
1,38,000
Cash at bank
1,780
Goods supplied to
6,000
Furniture
6,000
h/office
Salaries
4,500
Depreciation on
400
furniture
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
Rs.
Particulars
Rs.
To opening stock
6,000
By sales
1,38,000
To purchases
97,800
By goods supplied to H/O
6,000
To goods received from H/O
19,000
By closing stock
7,700
To gross profit c/d
28,900
1,51,700
1,51,700
To salaries
4,500
By gross profit b/d
28,900
To rent
1,960
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Advance Financial Accounting (FIN-611)
VU
To sundry office expenses
1,470
To depreciation on furniture
400
To net profit
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
20,570
(being the incorporation of branch net profit)
Goods in Transit A/c
3,700
To Meerut Branch A/c
3,700
(Being goods sent to branch on 28th December,
received on 3rd January, 2007)
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
19,180
(Being the incorporation of branch assets)
Meerut Branch A/c
1,850
To Meerut Branch Creditors A/c
1,850
(Being the incorporation of branch liability)
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
460
31.12.2006 By goods in Transit
3,700
A/c
To Meerut
1,850
By Meerut Branch
19,180
Branch Creditors
Assets A/c
A/c
To general Profit
20,570
& Loss
22,800
22,800
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Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet