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Table of Contents Page no

Accounting Standards ............................................................................................................... 4

Insurance Claims ......................................................................................................................... 13
Consignment Accounts ........................................................................................................... 19
Accounting for Joint Venture ............................................................... 25
Branch Accounts..................................................................................... 30

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 Chapter 1: Accounting Standards
Introduction
An accounting standard is a guideline for financial accounting, such as how a firm prepares and
presents its business income and expense, assets and liabilities. The Generally Accepted
Accounting Principles is comprised of a large group of individual accounting standards. GAAP
standards apply to financial reporting in the United States and may be eventually phased out in
favor of the International Accounting Standards.

The Need and Importance of Accounting Standards

Accounting standards in the United States appear in the form of the generally accepted
accounting principles, a set of standards, guidelines and procedures that are used when
accounting for the affairs of most governmental and non-governmental bodies. The interpretation
of numbers and the wherewithal to place them in the proper context are at the heart of
accounting. Standards exist to ensure that accounting decisions are made in a unified and
reasonable way.

Comparability
Paramount to the role of accounting standards is the universality that it brings to financial record
keeping. Governmental organizations must follow accounting procedures that are the same as
their counterparts, and non-governmental organizations must do the same. The result is that it is
easy to compare the financial standing of similar entities. All comparisons within groups are a
matter of comparing "apples to apples." This helps both external and internal observers weigh the
state of an entity in the context of other comparable entities. For instance, the financial standing
of a town can be measured against a neighboring town with the assumption that the pertinent
numbers have been reached in a similar fashion.

Transparency
Accounting standards are designed to enforce transparency in organizations. The principles,
procedures and standards that make up the generally accepted accounting principles were chosen
with the purpose of ensuring that organizations lean in the direction of openness when deciding
how to provide information to observers. This kind of transparency is especially important in the
case of public entities, such as governments or publicly traded companies. Standards limit the
freedom and flexibility of entities to use clever accounting to move items around or even to hide
them.

Relevance
Standards work to help entities provide the most relevant information in the most reasonable way
possible. In this way, an organization guided by accounting standards will generate the kind of
financial information that observers are most interested in examining. Entities ultimately should
provide information in a way that most fairly and clearly represents the current financial standing
of the operation. The standards make it more difficult for organizations to misdirect observers
and to fool them with data that does not have sufficient relevancy.

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Audiences
Ultimately, the importance of accounting standards lies in the value that it brings to financial
documents for the various audiences that view and make critical decisions based on it. An
absence of accounting standards would make the work of investors, regulators, taxpayers,
reporters and others more difficult and more risky. For instance, without standards, an investor
who has studied the financial statements of a large publicly traded company would not know
whether to trust the findings on those statements. Standards mean that taxpayers can see how
their tax dollars are being spent, and regulators can ensure that laws are followed

An Overview of Indian Accounting Standards

Preparation and presentation of financial statements based on accounting standards usually
known as Indian GAAP has emerged as an effective way of harmonizing different accounting
practices followed in India. Besides other benefits, financial statements prepared on the basis of
these standards are considered to present a true and fair view of financial results of the
enterprises. In this article, the various aspects of accounting standards like the advantages, scope,
procedure, compliance, etc., are discussed, along with their contents and applicability.
An enterprise needs to take care that its financial statements are prepared in accordance with the
accounting standards. If the organization is operating globally, statements of various US GAAP
are also to be taken care of. These accounting standards are applicable only to the items that are
material in nature. Any deviation from these accounting standards requires a disclosure in the
financial statement along with the impact thereof.
Each business entity prepares financial statements to depict its performance in monetary terms as
either profits or losses. These financial statements are used by various people. While preparing
these statements, there are diverse methods available to an entity for recording such business
transactions. Even the preparations of financial statements are not governed by a practice of
uniformity for recording transactions by different business entities. These accounting standards
have been prepared with a view to harmonize the various accounting practices used in India to
prepare financial statements. These standards are also known as Indian Generally Accepted
Accounting Principles (GAAP).
The Institute of Chartered Accountants of India (ICAI) being the body responsible for framing
accounting standards in India constituted the Accounting Standards Board (ASB) in the year
1977. The reason behind framing the ASB was to harmonize the diverse accounting policies and
practices that are being used in India. These accounting standards have assumed increased
importance after the 1990s, as globalization throws new challenges to enterprises by exposing
them to the best. One of them is that management not only needs to be honest, but also open and
transparent to the shareholders, the government and stakeholders.

Accounting Standard 2 ( AS 2 ) (VALUATION OF INVENTORIES)

This accounting standard is very helpful to calculate the value of inventories. ASB comprise all
stocks which is purchased for sale or production in inventories.
Value of stock is not fixed by single formula but this standard provides following guidelines for
calculating the value of inventories.

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1st stock must be valued on cost or net realizable value which is lower.

2nd Every company is free to use FIFO, LIFO or weighted average method for proper
calculation of the value of inventories.

3rd Cost of inventories = cost of raw material + cost of direct labour + cost of direct expenses

4th Companies are also free to use standard cost method or retail cost method for calculating the
value of inventories.

5th Inventories does not encompass the value of tools which is used for repair of machinery

Accounting Standard 3 ( AS 3) (CASH FLOW STATEMENT)

Accounting standard three which is revised in 1997 states that cash flow statement is a necessary
statement under this standard for banks , financial institute or any institute whose annual
turnover is more than Rs. 50 crores or any institute who has borrowed money more than Rs. 10
crores . This standard does not provide the Proforma of cash flow statement but deeply explain
the two way of making this statement.
Direct method

Under this method, cash flow statement is made by inflow and outflow of cash in operating,
investing and financial activities.

Indirect method

It is different from direct method. Under this method cash from operating activities is calculated
on the basis of net profit after different adjustments of non cash and non operating items like
depreciation, interest, dividend paid and also adjusting net changes in working capital. All other
part of cash flow from investing and financial activities are as same as direct method.

Accounting Standard 6 DEPRECIATION ACCOUNTING

Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable
asset arising from use, passage of time or obsolescence through technology and market changes.
Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each
accounting period during the expected useful life of the asset.
The depreciable amount of a depreciable asset should be allocated on a systematic basis to each
accounting period during the useful life of the asset.

Depreciable assets are assets which

[1] Are expected to be used during more than one accounting period; and
[2] Have a limited useful life; and
[3] Are held by an enterprise for use in the production or supply or for administrative purposes
Depreciable amount of a depreciable asset is its historical cost, or other amount substituted for
historical cost less the estimated residual value.

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Useful life is the period over which a depreciable asset is expected to be used by the enterprise.
The useful life of a depreciable asset is shorter than its physical life.
There are two method of depreciation:

 Straight Line Method (SLM)

 Written Down Value Method (WDVM)

Note: A combination of more than one method may be used.

 The depreciation method selected should be applied consistently from period

to period. The change in method of depreciation should be made only if;
 The adoption of the new method is required by statute; or
 For compliance with an accounting standard; or
 If it is considered that change would result in a more appropriate preparation
of financial statement; or

When there is change in method of depreciation, depreciation should be recalculated in

accordance with the new method from the date of the assets coming into use.
The deficiency or surplus arising from such recomputation should be adjusted in the year of
change through profit and loss account.
Such change should be treated as a change in accounting policy and its effect should be
quantified and disclosed.

This accounting standard is not applied on the following items.

Forests and plantations
Wasting assets
Research and development expenditure
Goodwill
Live stock

Disclosure requirements

1. The historical cost

2. Total depreciation for each class charged during the period
3. The related accumulated depreciation
4. Depreciation method used ( Accounting policy)
5. Depreciation rates if they are different from those prescribed by the statute
governing the enterprise

Accounting Standard 10 ACCOUNTING FOR FIXED ASSET

Definitions:

Fixed Asset is an asset held with the intention of being used for the purpose of producing or
providing goods or services and is not held for sale in the normal course of business. (It is
expected to be used for more than one accounting period.

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 The cost of fixed asset includes:
Purchase price
1. Import Duties and other non-refundable taxes
2. Direct cost incurred to bring the asset to its working condition
3. Installation cost
4. Professional fees like fees of architects
5. General overhead of enterprise when these expenses are specifically
attributable to acquisition/preparation of fixed assets
6. Any expenses before the commercial production, including cost of test run
and experimental production
7. Any expenses before the asset is ready for use not put to use
8. Loss on deferred payment arising out of foreign currency liability
9. Price adjustment, changes in duties and similar factors
The cost of fixed asset is deducted with:
Trade discounts and rebates

Sale proceeds of test run production

Amount of government grants received/receivable against fixed assets (See AS- 12)
Gain on deferred payment arising out of foreign currency liability

Similarly, historical cost of self constructed fixed assets will include:

 All cost which are directly related to the specific asset
 All costs that are attributable to the construction activity should be allocated to fixed
assets
 Any internal profit included in the cost should be eliminated.
 Any expenses incurred on asset between date of ready for use and put to use is either
charged to P&L A/c or treated as deferred revenue expenditure to be amortised in 3-5
years after commencement of production.
 When fixed asset is acquired in exchange for another asset, the cost of the asset acquired
should be recorded
- Either at, fair market value
- Or at, the net book value of the assets given up

For this purpose, fair market value may be determined by reference either to the asset given up
or to the asset acquired, whichever is more clearly evident.
Fixed asset acquired in exchange for shares or other securities should be recorded at FMV of
assets given up or asset acquired, whichever is more clearly evident. (I.e. the option of recording
the asset at net book value of asset given up is closed)

Fair market value is the price that would be agreed to in an open and unrestricted market
between knowledgeable and willing parties dealing at arm’s length distance.
Subsequent expenditures related to an item of fixed asset should be added to its book value only
if they increase the future benefits from the existing asset beyond its previously assessed
standard of performance.
Material items retired from active use and held for disposal should be stated at the lower of their
net book value and net realizable value and shown separately. Fixed assets should be eliminated

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 from the financial statements on disposal or when no further benefit is expected from its use and
disposal. Profit/loss on such disposal or writing off is recognized in the profit and loss account.

REVALUATION
When the fixed assets are revalued, these assets are shown at revalued price. Revaluation of
fixed assets should be restricted to the net recoverable amount of fixed asset.
When a fixed asset is revalued, an entire class of assets should be revalued or selection of assets
for revaluation should be made on a systematic basis. That basis must be disclosed.
Disclosure:

 Gross and net book value of fixed assets at the beginning and end of period showing
additions and disposals
 Revalued amounts substituted for historical costs of fixed assets, the method adopted to
compute the same and whether an external valuer was involved.

ACCOUNTING STANDARD - 14 ACCOUNTING FOR AMALGAMATIONS

PURPOSE
Accounting for amalgamations, Treatment of any resultant goodwill or reserves. It does not deal
with acquisition by one company of another company in consideration for payment in cash or by
issue of shares

Conditions for nature of merger

All the assets and liabilities are transferred; Shareholders holding not less than 90% of the face value
of the equity shares of the transferor company become shareholders of transferee company; The
consideration is discharged by the issue of equity shares in the transferee company; The business of
the Transferor Company is intended to be carried on; & No adjustment to be made to the book
values of the assets and liabilities

Methods followed nature of merger –

Pooling of Interests method
Purchase method

POOLING OF INTERESTS METHOD

The assets, liabilities and reserves are recorded at their existing carrying amounts. Uniform set of
accounting policies is adopted. The difference between the share capital issued and the share
capital of the transferor company should be adjusted in reserves.
PURCHASE METHOD
The assets & liabilities are recorded either at existing carrying values or by allocating the
consideration on the basis of Fair values on the date of amalgamation. The reserves of the
transferor company, other than the statutory reserves, should not be included in the financial
statements of the transferee company
Purchase method consideration Securities Cash Other assets In determining the value of the
consideration, an assessment is made of the fair value of its elements.

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Purchase method
If Consideration > Net Asset value= GOODWILL
Consideration < Net Asset value =CAPITAL RESERVE

DISCLOSURES FIRST YEAR -

Both natures of amalgamation names and general nature of business of the amalgamating
companies; effective date of amalgamation for accounting purposes; the method of accounting
used to reflect the amalgamation; and particulars of the scheme sanctioned under a statute

Disclosures from second year Pooling of Interests method (a) description and number of shares
issued, (b) the amount of any difference between the consideration and the value of net assets
acquired Purchase method (a) a description of the consideration paid or payable; (b) any
difference between the consideration and the value of net assets acquired.

ACCOUNTING STANDARD 20:-Earnings per share:-

Objectives:
-To set principles for the determination & presentation of EPS.
-To improve comparison of performance amongst enterprises for the same period and amongst
different accounting periods for the same enterprise.

Applicability

Enterprises whose equity shares or potential equity share are listed on Recognized Stock
Exchange,Other enterprises which disclose earnings per share in financial statements.
In the case of consolidated financial statements it should be determined & presented based on
consolidated information
Presentation Requirements (Disclosures)
An enterprise should present on the face of P&L Account.
Basic EPS wrt equity shares
Diluted EPS wrt potential equity shares

Potential equity share:

A financial instrument or contract that entitles or may entitle, its holder to equity share
e.g.Convertible debentures or preference shares ,Share warrants or options
ESOP,Disclosure to be made for all periods presented both the amounts to be disclosed with
equal prominence.
The information is to be presented even if the amount disclosed are negative (a loss per share)

Basic EPS = Net profit or loss for the period attributable to equity shareholders(A)/ Weighted
average no of equity share outstanding (B).
(A) = Net profit or loss for the period after deducting preference dividend & attributable tax
(CDT) thereon.

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(B) = Number of equity shares outstanding at the beginning of the period, adjusted by the shares
bought back or issued during the period multiplied by the time weighting factor.
Time weighting factor is the number of days for which the specific shares are outstanding as a
proportion to total number of days in the period
Diluted EPS= Diluted net profit or loss for the period attributable to equity shareholders / the
weighted average no of equity shares including shares issued on conversion of all the dilutive
potential equity shares outstanding during the period .

ACCOUNTING STANDARD 21Consolidated financial statements

OBJECTIVE
To formulate principles and procedures for preparation and presentation of consolidated
financial statements

Scope applicable to following enterprises Group of enterprises under the control of a

parent. Investments in subsidiaries

Excluded cases Amalgamations Investments in associates Investments in joint ventures.

DEFINITIONS CONTROL:
More than one-half of the voting power of an enterprise; or Control of the composition of
the Board of Directors in the case of a company so as to obtain economic benefits from
its activities.

Composition of consolidated financial statements Consolidated balance sheet,

Consolidated statement of profit and loss, Notes, additional statements and explanatory
material that outline an essential part thereof NOTE: The consolidated financial
statements are presented, to the extent possible, in the same format as adopted by the
parent for its separate financial statements.

SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements are compiled on the basis of financial statements
of parent and all enterprises that are controlled by the parent. The consolidated financial
statement of a parent organization should encompass all the subsidiaries, both domestic
and foreign companies.

However, the parent shall not include its subsidiaries when:

1. Control is intended to be for a short-term & the subsidiary is acquired with a view to
its subsequent disposal in the near future; or
2. it operates under severe long-term restrictions, which significantly impair its ability to
transfer funds to the parent.

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Consolidation procedures basic procedure The financial statements of the parent and
its subsidiaries should be combined on a one-to-one basis by grouping together the like
items of assets, liabilities, income and expenses.
Consolidation procedures other procedure The holding company should eliminate its
cost of investment in each of its subsidiaries
If cost of investment > holding’s share in equity Goodwill
If cost of investment < holding’s share in equity capital reserve

consolidation procedures Minority interests in the net income should be identified and
adjusted against the income of the group in order to arrive at the net income attributable
to the owners of the parent; and Minority interests in the net assets should be identified
and presented in the consolidated balance sheet separately from liabilities and the equity
of the parent's shareholders

Disclosures The consolidated financial statements should disclose by way of a note - all
subsidiaries including the name, country of incorporation or residence, proportion of
ownership interest Intragroup balances and transactions and resulting unrealized profits
should be wholly discarded. The financial statements used in the consolidation should be
drawn up to the same reporting date.
The consolidated financial statements should disclose the following wherever applicable:
a. the nature of the relationship between the parent and a subsidiary, b. the impact of the
acquisition and disposal of subsidiaries on the financial position c. the names of the
subsidiary of which reporting date is different from that of the parent and the difference
in reporting dates.
Minority interests should be presented in the consolidated balance sheet separately from
liabilities and the equity of the parent's shareholders. Consolidated financial statements
should be prepared using uniform accounting policies. In case such uniform accounting
policies cannot be incorporated in preparation of consolidated financial statements the
same shall be disclosed

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 Chapter 2: Insurance Claims
Introduction

The stock kept in every business is subject to risk by loss of fire. To protect itself against such
loss the business takes up a fire insurance policy by paying premium. The chapter aims at
computing the loss of stock by fire(based on closing stock on the date of fire), which can thus be
claimed as compensation from the insurance company. The following steps may be followed to
start with:

1) % of Gross profit on sales- this can be computed from the gross profit and sales figure of
the trading account for the year prior to the year of fire GP * 100
Sales
2) Memorandum trading account- this trading account must be prepared from the beginning
of the year of fire up to the date of fire. The GP must be calculated based on the same %
as above and the balancing figure of this account will be the closing stock.

3) Calculation of claim- The final claim to be lodged with the insurance company must be
calculated on the basis of the closing stock in the memorandum trading account as ;
Claim = Closing stock- Salvage+ fire fighting expenses.

Note: Salvage refers to goods saved from fire,

Fire fighting expenses are incurred to save goods from fire.

Example 1: (simple problem)

The premises of a trader caught fire on 01.07.2012 and the stock was damaged. The following
information is available:

Stock on 01.01.2011 Rs. 95000 Purchase return Rs.15000

Stock on 31.12.2011 Rs.150000 Sales return Rs.30000

Purchases for 2011 Rs.421000 wages Rs.65000

Sales for 2011 Rs.550000

Purchases from 01.01.2012 to 01.07.2012 is Rs.350000

Sales from 01.01.2012 to 01.07.2012 is Rs.491000

Additional information:

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1) Purchases of 2012 includes Rs10000 worth of goods distributed as free samples for
advertisement and promotion

2) In 2012, a clerk misappropriated unrecorded cash sales Rs.4000

3)Stock worth Rs.18000 could be salvaged; fire fighting expenses incurred to save the goods was
Rs.1000.

Prepare a statement of claim to be submitted to the insurance co.

Solution: Trading account for the year ended 31.12.2011

Particulars Rs. Particulars Rs.

To, opening stock 95000 By,Sales 550000
To, purchases 421000 -returns 30000 520000
-Returns 15000 406000
To wages 65000 By, closing stock 150000
To, Gross profit 104000

670000 670000

Workings:
% gross profit on sales = 104000 *100 =20%
520000

Memorandum Trading Account from 01.01.2012 to 01.07.2012

Particulars Rs Particulars Rs
To, opening stock 150000 By sales 491000
To purchases 350000 +unrecorded cash sale
-Goods given as 4000 495000
free sample 10000
By, closing stock 94000
To gross profit (bal.fig)
(495000* 20%) 99000

589000 589000
Statement of Claim

Value of closing stock on date of fire Rs.94000

-Salvage Rs.18000
Rs.76000
+ Fire fighting expenses Rs. 1000
Total claim Rs.75000.

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Average Clause
It refers to a clause in the insurance agreement to discourage the under insurance of stock or any
other asset. This clause is applicable when the value of insurance policy is less than the value of
clasing stock on the date of fire.The claim can be computed as:

Claim= Stock destroyed by fire* Policy value

Stock on date of fire.

EXAMPLE 2: (problem with average clause)

A fire occurred in the premises of M/s unlucky on 15.04.2012 from where goods worth Rs.30000
only could be saved. Goods worth Rs.26000 were also saved in damaged condition. From the
following information calculate the claim to be submitted to the insurance company on a policy
of Rs.342000.

Stock on 01.01.2011 Rs.288000

Purchases for 2011 Rs.1876000

Stock on 31.12.2011 Rs.484000

Sales for 2011 Rs.2320000

Purchases from 01.01.2012 to 14.04.2012 Rs.364000

Sales from 01.2012 to 14.04.2012 Rs.480000

Carriage inward during 2011 Rs.200000

Carriage inward during 2012 Rs.36000

Carriage outward during 2012 Rs.65000

A fire also broke out on 20th December 2011 and destroyed stock worth Rs.100000.The firm had
a practice of valuing stock at cost less than 10%.However the policy was changed and the stock
on 31.12.2011 was valued at 10% above cost.

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Solution:

Trading Account for the year ended 31.12.2011

Particulars Rs. Particulars Rs.

To opening stock 3,20,000 By Sales 23,20,000
(288000 x 100 )
90 By closing stock 4,40,000
To purchases 18,76,000 (484000 x 100 )
To carriage inward 2,00,000 110
To Gross profit 4,64,000
(bal.fig) By stock destroyed by 1,00,000
fire

28,60,000 28,60,000

Workings: % Gross profit on sales = 464000 x 100 =20%

2320000

Memorandum Trading Account from 1.1.2012 to 14.04.2012

Particulars Rs Particulars Rs
To opening stock 440000 By Sales 480000
To purchases 364000 By Closing stock 456000
To carriage inward 36000 (bal.fig)
To Gross profit
(480000 x 20 %) 96000

936000 936000

Stock destroyed by fire is ----

Closing stock Rs.456000
- Salvage of goods
In good condition Rs.30000
In damaged condition Rs.26000
Rs.400000

Amount of claim = Policy value x Stock destroyed by fire

Stock on date of fire

= 342000 x 400000 =RS.300000

456000

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Abnormal Line of Goods
Goods which cannot be sold at the normal price or which has a slow rate of turnover (due to
obsolescence or damage) are called as abnormal goods. It is important to note that the rate of
gross profit on sales is calculated only on the basis of normal goods. Hence a separate column is
prepared in the trading and memorandum trading account for the abnormal line of goods.

EXAMPLE:3 (problem with abnormal line of goods)

On 30th September 2012,the stock of Armstrong Ltd.was lost in fire. Calculate amount of claim
from the following available information.

Stock at cost on 01.04.2011 Rs.37500

Stock at cost on 31.03.2012 Rs.52000

Purchases less returns for year ended 31.03.2012 Rs.253750

Sales less returns for year ended 31.03.2012 Rs.315000

Purchases less returns upto 30.09.2012 Rs.145000

Sales less returns upto 30.09.2012 Rs.184050

In valuing the stock on 31.03.2012 due to obsolescence, 50% of the stock originally costing
Rs.6000 had been written off. In May 2012, 3/4 th of the stock had been sold at 90% of the
original cost and it is expected that the balance of the abnormal goods will also realize the same
price. Subject to the above the gross profit remained same throughout. Stock salvaged was
Rs.7200.

Solution:

Trading Account for the year ended 31.03.2012

Particulars Rs Particulars Rs
To opening stock 37500 By Sales 315000
To purchases 253750 By closing stock 52000
To gross profit 78750 +Written off 3000 55000

370000 370000
Workings:

% gross profit on sales = 78750 x 100 = 25%

315000

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 Memorandum Trading Account from 01.04.2012 to 30.09.2012
Particulars Normal Abnorma Total Particulars Normal Abnormal Total
l
To opening 49000 6000 55000 By Sales 180000 4050 184050
stock (6000x ¾
To 145000 --- 145000 x90 %)
purchases By gross
loss ---- 600 600
By gross 45000 --- 45000 By closing
profit stock 59000 1350 60350
(180000 x (6000 x ¼ x
25%) 90%)

239000 6000 245000 239000 6000 245000

Note: The gross loss on abnormal stock has come as balancing figure.

Calculation of amount of claim:

Closing stock on date of fire Rs.60350

Less: Salvage Rs. 7200

Amount of claim Rs. 53150

Important points for the chapter

1. Trading account for the year prior to the year of fire need not be prepared if the % gross
profit on sales is already provided in the question.
2. Average clause can be applied only when the insurance policy value is given in the
question.
3. Average clause is not applicable if there is no under insurance (even if policy value is
given in the question).
4. Sale of abnormal goods is separate from sale of normal goods, so the % gross profit on
sales is not applicable to the sale of abnormal goods.
5. Stock destroyed by fire (for the purpose of average clause) is the stock on the date of fire
– stock saved from fire ie.salvage.
6. If the gross profits % of several previous years are provided in the question then the
average of such %gross profits must be calculated to be applied in the memorandum
trading account.

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 Chapter 3: Consignment Accounts
Consignment is an agreement under which a manufacturer or a wholesaler sends goods to an
agent for the purpose of sale at far off places on his behalf on commission basis. It is an effort to
increase sale by widening the market. The person who sends the goods for the purpose of sale is
called the consignor. The person receiving the goods is called the consignee.

The consignor pays commission to the consignee for selling his goods on behalf of him. There
are 3 types of commission namely ordinary, del-credere (for bearing the risk of bad debts) and
over-riding commission (for selling goods above a certain price). The relationship between the
consignor and the consignee is that of principle and agent.

Accounting for consignment:

In consignment, books of accounts are maintained by the consignor and the consignee. In the
books of the consignor the following accounts are prepared- 1)Consignment account

2) Consignee account

3)Goods sent on consignment account

In the books of the consignee the following accounts are prepared-

1)Consignor account

2) Commission account

Unsold Stock: Goods send on consignment may not be sold completely and remain with the
consignee and can be valued as :

Cost of unsold units xxxxx

Add: non-recurring expenses of consignor xxxxx

Add: non-recurring expenses of consignee xxxxx

EXAMPLE :1(simple problem)

A sent goods worth Rs.10000 to B and paid Rs.1200 for packing and Rs.800 for insurance. B
took delivery of the goods and paid Rs.2000 for freight, Rs.400 for cartage, Rs.600 for godown
rent, Rs.400 for selling expenses and Rs.800 for insurance. B sold ¾ th of the goods for
Rs.18000.Pass journal entries in the books of the consignor.

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Solution:

Journal entries in the books of A (consignor)

Date Particulars L/ Dr. (Rs) Cr.(Rs)

F
1. Consignment a/c Dr. 10000
To, Goods sent on consignment a/c 10000
(Being goods sent on consignment)

Consignment A/c Dr. 2000 2000

To, Bank a/c
(Being expenses paid by consignor)

Consignment a/c Dr. 4200 4200

To, B a/c
(Being expenses paid by consignee)

B a/c Dr. 18000

To, Consignment a/c 18000
(Being goods sold by consignee)

Consignment Stock a/c Dr. 3600

To, Consignment a/c 3600
(Being totalcost of unsold stock) (WN)

Consignment a/c Dr. 5400

To, P/L a/c 5400
(Being profit on consignment )

43200 43200
Working Note (WN):

Valuation of closing stock – Rs.

Cost of unsold stock (10000 x ¼) 2500

Add: non-recurring expenses of

Consignor (2000 x ¼) 500

Add: non-recurring expenses of

Consignee (2000+400) x ¼ 600

Total cost of unsold stock 3600

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Note: Godown rent, insurance (of consignee) and selling expenses are not non-recurring
expenses , hence excluded in the valuation of unsold stock.

Normal Loss and Abnormal Loss:

When goods consigned are lost due to normal but unavoidable reasons like leakage,evaporation
etc. such losses are called normal loss. There is no separate entry for normal loss, it is adjusted in
the valuation of closing stock.

When goods are lost due to unexpected or accidental causes like fire,theft,accident in transit etc.
such losses are called abnormal loss. There is separate entry in the consignment account for
abnormal loss and is valued similar to unsold stock.

Goods consigned at Invoice Price

Often in order to prevent from revealing the true profit on consignment to the consignee , the
consignor sends goods at an inflated price.This price which is above the cost price is called the
invoice price and is given as a % of profit on the cost price. Hence the invoice = cost price +
profit (also called load).

When goods are sent at invoice price, all entries are made at invoice price.But to identify the true
profit on consignment, the consignor must enter the load on the opposite side. Hence goods sent
on consignment and unsold stock are calculated and entered at invoice price and the
loading on those items are entered on the opposite side. However abnormal loss is always
calculated at cost price (unless otherwise mentioned to be calculated at invoice price).

EXAMPLE: 2 ( for consignment at invoice price)

Mani Batteries, Bengaluru consigned 1500 batteries costing Rs.5000 each to Rani Batteries,
Mangalore at invoice price of cost plus 25% The consignor paid Rs.75000 for freight and
Rs.30000 for insurance.During transit 10 batteries were damaged and the insurance co. accepted
a claim of Rs.45000.The consignee received the goods and an advance B/R of Rs.2000000 was
sent to consignor. Rani Batteries sold 800 batteries for cash @Rs.6500 and 450 batteries on
credit @Rs.7000. They also paid Rs.42000 for godown rent and Rs.36500 for advertisement. The
consignee is entitled to an ordinary commission of 5% on all sales and del-credere commission
of 2% on credit sales. Assuming that the balance due to the consignor was remitted by a bank
draft, prepare ledger accounts in the books of the consignor.

21
Solution:

In the Books of Mani Batteries, Bengaluru.

Consignment to Mangalore Account

Particulars Rs. Particulars Rs.

To, goods sent on consignment By,Rani Batteries a/c (total
a/c (at invoice price) 9375000 sales) 8350000
To, Bank a/c (expenses of the By, goods sent on consignment
consignor) 105000 a/c (load on goods sent) 1875000
To, Rani Batteries a/c (exp of the By, Abnormal loss a/c
consignee) 78500 (at cost price) 50700
By, consignment stock a/c
To,Rani Batteries a/c (total 480500 (unsold stock at invoice price)
)commission 1516800
To, stock reserve (load on 300000
unsold stock)
To, P/L a/c (profit on
consignment) 1453000
11780000 11780000

Goods sent on consignment Account

Particulars Rs. Particulars Rs.

To, goods sent on consignment 1875000 By, consignment to Mangalore 9375000
a/c a/c
To,trading a/c (bal.fig) 7500000
9375000 9375000

Rani Batteries Account

Particulars Rs. Particulars Rs.

To, consignment to Mangalore 8350000 By, bill receivable a/c 2000000
a/c (advance payment)
By,Consignment (exp of 78500
consignee)
By, Consignment 480500
a/c(commission)
By, bank a/c (final settlement 5791000

8350000 8350000

22
 Abnormal Loss Account

Particulars Rs. Particulars Rs.

To, Consignment to Mangalore By,Insurance Co.(claim on 45000
a/c 50700 abnormal loss)
By,P/L a/c 5700
50700 50700

Workings:

1. Per unit cost of goods sent Rs.5000

Add: load/profit (5000 x 25%) Rs.1250
Invoice price of goods sent Rs.6250

2. Valuation of Abnormal Loss

Cost of abnormal units lost in transit (5000 x 10) Rs.50000
Add: non-recurring exp of consignor (105000x10 ) Rs. 700

1500

Add: : non-recurring exp of consignee nil

(as goods lost in transit have not reached consignee) --------------

Rs.50700

3. Valuation of Unsold Stock

No. of unsold units is

1500 (sent) – 10 (lost in transit) - 1250 (sold) = 240 units

Invoice price of unsold units (6250 x 240) Rs.150000

Add: non- recurring ex of consignor (105000x240 ) Rs. 16800

1500

Add: non – recurring exp of consignee nil

( all expenses of consignee are recurring in nature ) ---------------

1516800

4. Abnormal loss has been calculated at cost price; alternatively it could be shown in
invoice price and the load on the opposite.

23
 5. In case the insurance company pays the claim amount, the entry will be shown through
bank a/c in abnormal loss account instead of insurance co. a/c.

EXAMPLE:3 (normal loss, abnormal loss and unsold stock)

Mohan of Chennai consigned 2000 kg of chemicals to Deepak of Hyderabad costing

Rs.300 per Kg.He paid Rs.20000 as freight and Rs.5000 as insurance.10 kg was lost by
leakage and 150 Kg was accidentally destroyed in transit. Deepak received the goods and
paid Rs.15000 for unloading and Rs.8000 for godown rent.He sold 1600 Kg
@Rs.450.Calculate abnormal loss and unsold stock.
Solution:
Valuation of abnormal loss:
Cost of abnormal loss units (150 x 300) Rs.45000
Add: non-recurring exp of consignor (25000x150) Rs. 1875
2000
Add: non-recurring exp of consignee nil
--------------
Rs.46875
Valuation of unsold stock:
Units of unsold stock is 2000 (sent) – 10 (normal loss) – 150 (abnormal loss) – 1600
(sold) =240 Kg.
Qty Cost (Rs.)
Total goods sent 2000 600000
Add: non-recurring exp of consignor 25000
2000 625000
Less: Abnormal loss 150 46875
1850 578125

Add: non-recurring exp of consignee 15000

1850 579975

Less: Normal loss 10 -----

1840 579975

So, Value of closing stock = 579975 x 240 = Rs.75649

1840

24
 Chapter: 4 Accounting for Joint Venture
A joint venture is a short term business jointly undertaken by two or more persons who share the
profits and losses in an agreed ratio. The parties who enter into this business are called joint
venturers or co-venturers. Temporary partnership business like construction of a building,
underwriting of shares etc are generally done in this way.
Accounting for Joint Venture:
The accounting for joint ventures are generally done in 2 methods:
1. By maintaining separate set of books – here the following accounts must be prepared:
a)Joint Bank account
b)Joint Venture Account
c)Co-venturers Account
2. By not maintaining separate set of books –
i)when each coventurer keep record of all transactions
a) Joint venture A/C
b) Co-venturer A/C
ii) when each coventurer keep record of own transactions only.
a)Memorandum Joint venture A/C
b)Joint venture with Co-venturer A/C.

EXAMPLE :1 (problem with separate set of books)

Ravindra and Nagendra started a joint venture each depositing Rs 1000000 into a joint bank
account. They decided to share profits and losses equally. They purchased goods on cash for
Rs.1780000 and on credit for Rs.700000.The joint venture expenses amounted to Rs.320000.The
cash sales and credit sales amounted to Rs.2500000 and Rs.1000000 respectively. The entire
dues to the creditors was paid and the dues from the debtors were collected .The coventurers
accounts were also settled. Prepare ledger accounts when separate set of books are maintained.

Solution:
Joint Venture Account
Particulars Rs. Particulars Rs.
To, joint bank a/c-cash 1780000 By, joint Bank-cash sales 2500000
purchase By, debtors –credit sales
To, creditors a/c-credit 700000 1000000
purchase
To, joint bank a/c-exp 320000
To, Profit on venture
Ravindra- 350000
Nagendra-350000 700000

3500000 3500000

25
 Joint Bank Account

Particulars Rs. Particulars Rs.

To, Ravindra a/c 1000000 By, joint venture-cash 1780000
To Nagendra a/c 1000000 purchases
To, joint venture a/c-cash sales By,creditors-cash paid 700000
To, debtors a/c- amt collected 2500000 By, joint venture-exp 320000
1000000 By,Ravindra a/c 1350000
By, Nagendra a/c 1350000
5500000 5500000

Co- Venturer’s Account

Particulars Ravi Naga Particulars Ravi Naga

To, joint bank a/c 1350000 1350000 By, joint bank 1000000 1000000
– (final setlmt) a/c
By, joint
venture a/c - 350000 350000
profits
1350000 1350000 1350000 1350000

When no separate set of books are maintained:

In this method each co venturer prepares a) joint venture a/c and b) co venture a/c. In the joint
venture a/c the own profits are recorded as P/L a/c and the profit of the co venture is recorded as
personal a/c

However when each co venturer keeps record of own transactions only, then a Memorandum
joint venture account is prepared where all venture expenses are debited and all venture income
are credited. The balance in this account is the profit or loss on joint venture and is transferred to
the co venturers in the agreed ratio.

EXAMPLE:2 ( when no separate set of books are maintained)

A , B and C entered into a joint venture to share profits and losses as 1/2, 1/3 and 1/6.No separate
set of books is maintained. Amounts contributed and received by different venturers are as
follows:

26
 A B C

Cost of materials 20000 25000 5000

Expenses 3000 4000 7000

Sale proceeds received 30000 40000 50000

Stock taken over 2000 3000 5000

Prepare (a) Memorandum Joint Venture A/C

(b) Joint venture with co venturer A/C in the books of all parties

Solution: Memorandum Joint Venture Account

Particulars Rs. Particulars Rs.

To, A- materials 20000 By, A – sales 30000
-expenses 3000 -Stock taken over 2000
To, B – materials 25000 By,B –sales 40000
- Expenses 4000 -Stock taken over 3000
To, C – materials 5000 By, C –sales 50000
- Expenses 7000 -Stock taken over 5000
To, profit transferred
A 33000
B 22000
C 11000 66000

130000 130000

In the books of A

Joint Venture with B and C Account

Particulars Rs. Particulars Rs.

To, Purchase a/c 20000 By, Bank a/c –sales 30000
To, Bank a/c – expenses 3000 By, stock taken over 2000
To, P/L a/c (profit) 33000 By, Bank a/c
(final settlement) 24000
56000 56000

27
 In the books of B

Joint Venture with A and C Account

Particulars Rs. Particulars Rs.

To, Purchase a/c 25000 By, Bank a/c –sales 40000
To, Bank a/c –expenses 4000 By, stock taken over 3000
To, P/L a/c (profit) 22000 By, Bank a/c
(final settlement) 8000
51000 51000

In the books of C

Joint Venture with A and B Account

Particulars Rs. Particulars Rs.

To, purchases a/c 5000 By, Bank a/c – sales 50000
To, Bank a/c- expenses 7000 By, stock taken over 5000
To, P/L a/c (profit) 11000
To, Bank a/c 32000
(final settlement)
55000 55000
EXAMPLE 3
Arun and Varun entered into Joint Venture for dealing in second hand cars. It was agreed that
Arun should buy cars and Varun should recondition them. A commission of 5% should be
allowed for both and P/L to be shared equally. Arun purchased 7 cars for Rs.18500 and Paid
Rs.210 for insurance and Rs.130 for advertising.Varun contributed Rs.8000 for the purchase
money and paid Rs.1140 for repairs and charged Rs.100 for garage rent. Arun sold 2 cars for
Rs.6600 and Varun sold 4 cars for Rs.13360. Arun took over the remaining cars at Rs.2500 and
the venture was closed. Show the ledger accounts of the venture in the books of each party.
Solution:
In the Books of Arun
Joint Venture Account
RS RS
To Bank (cost of cars) 18500 By Bank( sale of cars) 6600
To Bank (insurance and adver) 340 By Varun( sale of cars) 13360
To Varun (repairs and garage) 1240 By unsold stock (car taken over) 2500
To Commission (5%) 330
To Varun (5%) 668
To Profit and Loss Account 691
To Varun Account 691
22460 22460

28
 Varun Account

Rs Rs
To Joint Venture (sales) 13360 By Bank (money received) 8000
By Joint Venture(Repairs, garage) 1240
By Joint venture (comm.) 668
By Joint venture (share of profit) 691
By Bank (final settlement) 2761
13360 13360

In the Books of Varun

Joint Venture Account

Rs Rs
To Arun (cost of cars) 18500 By Arun account (sales) 6600
To Arun (insurance and adv) 340 By bank account (sales) 13360
To Bank (repairs and garage) 1240 By Arun account (cars taken over) 2500
To Arun (comm.) 330
To commission (5%) 668
To profit and Loss account 691
To Arun account 691

22460 22460

Arun Account

Rs Rs
To Bank account(money sent) 8000 By Joint Venture (cost of cars) 18500
To Joint Venture Account (sales) 6600 By Joint Venture (ins and adv) 340
To Joint Venture Account (car taken 2500 By Joint Venture (commission) 330
over) By Joint Venture (share of profit) 691
To Bank (final settlement) 2761

19861 19861

29
 Chapter 5 :BRANCH ACCOUNTS
INTRODUCTION

Required large manufacturing and trading operate at different places in the same country as well
as in foreign countries through their own establishment for promoting sales. The system of
operating at several places through one’s own establishment is called branch organization.

The parent or the main establishment located at the main place of activity and which exercises
control over the other establishment is called head office.

OBJECTIVES OF BRANCH ACCOUNTING:

(1) To ascertain the profit and loss of each branch separately.

(2) To ascertain the real financial position of each branch.
(3) To exercise proper control over each branch.
(4) To ascertain and to meet the goods and cash requirement.
(5) To assess the progress and performances of each branch.
(6) To calculate the commission payable to branch manager when their commission is band
on the profit of their respective branches.
(7) To ascertain whether branches should be expanded or closed.

Dependent branch

Features of dependent branches:

(1) Goods are supplied by the H‘O the branches have no right to purchase directly.
(2) H’O can supply goods either at cost price or invoice price.
(3) Sales are required to be made by these branches either only for cash or credit in
accordance with the instruction issued by the H’O.
(4) All regular expenses of branch like sent, salary, adu etc. paid by H’O are paid by cheque
but petty cash expenses like postages, telegrams are paid by the branch even this petty
expenses are paid by the branch out of the petty cash sent by the H’O.
(5) The branch is required to deposit the cash sale proceeds and collected from debtors must
be sent by the head office.
(6) The branch does not maintain complete set of books, they maintained only:-
(1) Cash book
(2) Petty cash book
(3) Memorandum stock book
(4) Sales book
(5) Total debtors book.

30
 (7) Branch do not maintain complete set of accounts therefore head office necessary
accounts of branch on the bases of stock statement, cash statement, petty cash statement. A
statement of debtors sent to the branch to the head office.

Accounting Methods of Dependent Branch

Journal entries of branches under debtors system:

(1) Head office treats the branch office as a debtor

(2) At the end of the accounting period head office prepares a branch account to ascertain the
profits and loss of the branch.

(3) The assets and liabilities of the branch at the beginning of the accounting year are treated
as given by the head office and those at the end of the year treated as return by the
branch.

The goods are supplied by the head office branch at a cost price.

1. If there are opening balance of branch stock, branch debtors, and branch petty cash.
Branch A/C Dr
To branch stock A/c
To branch debtors A/C
To branch petty cash A/C
2. When the head office supply the goods to the branch
Branch A/C Dr
To goods sent to branch A/C
3. When the head office sent cheque to the branch for meeting the branch expenses.
Branch A/C Dr
To bank A/C
4. When head office receives the remittances of the cash scales, proceeds, and cash
collected from the branch debtors.
Bank A/C Dr
To branch A/C

31
 5. When the goods are returned by the branch to the head office.
Goods sent to branch A/C Dr
To branch A/C
6. When the closing balance of the branch stock branch debtors and branch petty cash.
Branch stock A/C Dr

Branch Drs A/C Dr

Branch petty cash A/C Dr
To branch A/C
7. (a)If there is net profit.
Branch A/C Dr
To general P/L A/C

(b) If there is a loss.

General P/L A/C Dr

To branch A/C

Format of the branch ledger

Format of the branch A/C in books of the head office.

Dr Cr

To opening assets By opening

( with the Value of the liabilities
assets at the branch at XXX (liabilities values at XXX
the beginning of the the beginning of the
year) year)

By bank
To goods sent to the
(Remittances made
branch
by the branch Like
(cost price of the goods XXX XXX
collections funds,
sent by the head office
cash sales and other
to the branch)
receipts)

By goods sent to
To bank
branch
(amount of branch
XXX (Cost price of the XXX
expanses met by the
goods returned by
head office)
the branch)

32
 To closing
By closing assets
liabilities(Value of
(value of the assets
liabilities at the branch XXX XXX
at the branch at the
at the end of the
end of the period)
accounting period)

To general P/C A/C XXX By general P/C A/C XXX

1. When branch is authorized to sell only for cash.

An ltd with its head office in Bangalore as a branch at Mysore. You are given the full
particulars relating to Mysore branch for the year ending 30/06/04. Stock at branch on 01/07/03
Rs 32,600. Petty cash branch on 01/07/03 Rs 110. Goods sent to branch Rs 45,600.

Goods returned by the branch - Rs 3900

Cash sales at branch - Rs 71900

Cash sent to branch expenses:

Salary - Rs 12,800
Rent - Rs 3,000
Petty cash - Rs 2,600

Total expenses - Rs 18,400

Stock at branch on 30/06/04 - 37,100, Prepare Branch Accounts:

In the books of ‘A’ Ltd

Bangalore
Mysore branch A/C for the year ended 30/06/04.

To op. Stock at branch 32600 By Bank

To open petty cash 110 (Cash sales) 71900

By goods sent to
To goods sent to branch 45600 branch 3900

33
 To bank
Salary 12800
Rent 3000
P.C 2600

18400 By CL. Stock 37100

To General P/C A/C 16280 By CL. P.C 90
112990 112990

If the goods are supplied by the head office to the branches at an Inflated Price, loaded price or
invoice price (price higher than the cost price).

Reasons for sending the goods at invoice price:

1. To keep the branch manager in dark about the cost of goods sold and profit may thereon.
2. To effective check on branch stock and prevent carelessness.

I Procedure:

Branch A/C is prepared to ascertain profit/ loss of each branch in the branch A/C. all the
items relating to goods (given at an invoice price) or first entered at the invoice price before
balancing the branch A/C adjustments are made for the load involved in these items.

(1) If the entry required for adjusting the difference b/w the cost price and the invoice price
of the opening stock:
Stock Reserve A/C Dr -The Diff b/wCp and Invoice
Price.
To Branch A/c
(2) Goods sent to branch at invoice price
Goods sent to branch A/C
To branch A/C Dr
(3) Goods returned by the branch
Branch A/C
To goods sent to branch A/C Dr
(4) Closing Stock
Branch A/C
To Stock reserve A/C Dr

34
Branch A/C format if the goods are sent to branch at invoice price

[Under branch A/C with adjustment]

Dr Cr

By Remittance(bank)
(a)cash sales XXX
To branch stock(IP) XXX XXX
(b)cash collected from Drs
XXX

By goods sent by
To branch Debtors XXX XXX
branch(I.P)
To branch Petty Cash XXX By Branch Stock XXX
To goods sent to
XXX By Branch Drs XXX
branch(I.P)
To bank XXX By branch Petty Cash XXX

To goods sent to branch

By stock reserve
(Amt of difference b/w Cp
XXX (Amt of difference b/w Cp XXX
and invoice price of goods
and Ip of opening stock)
retuned by the branch)

To stock Reserve
(Amt of difference b/w By goods sent by the branch
XXX XXX
Cp and Ip of closing (difference b/w Cp and Ip)
stock)

To General P/C XXX By general P/C XXX

1) Shining shoes store invoiced goods to its madras branch at 20% profit on sales price the
branch sends cash daily to Head office. And all expenses are paid by H’O’, expect for
petty expenses which are met by the branch manager. From the following particulars
prepare the branch A/C in the books of shining shoes stores.

Stock on 01/01/92(I.P) - 15000

Drs on 01/01/92 - 9000

35
Cash on 01/01/92 - 400

Furniture on 01/01/92 - 1200

Goods received from H’O’ (I.P) - 80000

Goods returned to H’O” - 1000

Goods Returned by Drs - 480

Cash received from Drs - 30000

Cash sales - 50000

Total sales - 80000

Discount allowed to Drs - 300

Expenses paid by H’O”:

Rent - 1200

Salary - 2400

Stationary - 300

Petty Expenses paid by branch- 280

Stock on 31/12/92 - 14000

Depreciation on furniture at 10% p.a-

Memorandum of Debtors A/C

To balance b/d 9,000.00 By cash 30,000.00
To credit sales 30,000.00 By sales Returns 480.00
By Discount 300.00
By balance b/d 8,220.00
39,000.00 39,000.00

36
 In the books of Head office

Madras branch as on 31/12/92

To branch stock A/C 15,000 By bank

To branch Drs A/C 9,000 cash sales- 50000 80,000
To branch cash 400 cash Drs- 30000
To branch furniture 1,200 By goods sent by branch A/C 1,000
To goods sent to branch 80,000 By branch stock 14,000
To bank
Branch Drs 8,220

Rent- 1200 Branch Furniture 1,080

4,180 Branch petty cash
Salary- 2400 120
(400-280)

By Stock Reserve
Stationary- 300 2,500
(15000X20/120)
Petty expenses-280
By goods sent to branch
To goods sent by branch 200
167 (1200X1/6)
(1000X1/6)

To closing stock
2,333 By general P/L A/C 5,160
(14000X1/6)
1,12,280 1,12,280

Final account system

Under this system H’O’ prepare memoranda trading a/c. and profit & loss a/c to ascertain the
result of the branch.

1. Opening stock at the branch goods sent to branch goods returned by the branch and
closing stock at the branch must be shown as cost price.
If the goods are sent at invoice price or loaded price the load must be deducted and the
CP of these items must show.
2. Since this system involves preparation of memorandum branch, trading & P/C A/C is not
the part of doubt entry system. No need of passing journal entries.
3. In the branch trading and P/C A/C, returns from the branch if any not entered on the
credit side. They are deducted from goods sent to branch.

37
A Merchant at Bangalore has a branch at Mysore to which he charges out of the goods at
cost+25%. The Mysore branch keeps its own sales ledger and transmits all cash received to the
H’O’ every day. All expenses are paid from the H’O’ the transactions from the branch are as
follows:

Accounting for independent branch

Introduction

Independent branches refer to the branches which operate like a separate entity; through legally it
is not a separate entity. They are the branches which maintain a complete accounting system
itself. The H’O’ would only incorporate the results of such branches at the end of the accounting
period in its books.

Main Features

(1) Accounts are maintained by the branch.

(2) Results are ascertained by the branch.
(3) The transaction between H’O’ and branch are recorded both in the books of H’O’ and
branch.

Write JES in the books of H’O’ and the branch as on 31/12/03

(a) The H’O’ had sent goods on 28th, 12, 2003 worth Rs 1000 to the branch which received
these goods on 03/01/2004.
(b) On 27/12/03 the branch had remitted Rs 750 to the H’O’ which received this amount on
01/01/04
(c) Depreciation on branch assets was Rs 400 the account of these assets was kept in the
book of the H’O’.
(d) A clerk of the branch had rented services worth Rs 600 in the H’O’. A salary was paid by
the branch.
In the Books of H.O
Journal Entries
1) Goods in Transit Account
Dr. Rs.1,000
To Branch Account Rs.1, 000
[Being reconciliation of goods in transit]
2) No entry in required to be passed
3) Branch Account Dr. Rs.400 To Branch Asset
Account Rs.400
4) [Being depreciation on Branch asset maintained by H.O]

38
5) Branch Expenses Account Dr. Rs.600
To Branch Account
[Being share of branch expenses recorded] Rs.600

In the Books of Branch

Journal Entries
1) No entry is requires to be passed.
2) Cash-in-Transit Account Dr. Rs.750
To Head Office Account Rs.750
[Being reconciliation of cash in transit]
3) P/L Account Dr. Rs.400
4) To P/L Account Rs.400
[Being depreciation charged]
5) H.O Account Dr. Rs.600
To P/L Account Rs.600
[Being salary paid for services rendered at H.O]

39