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A TRADING COMPANY MAY TRY TO EXPAND ITS BUSINESS BY OPENING BRANCHES AS ANOTHER ESTABLISHMENT OF THE COMPANY IN DIFFERENT LOCATIONS
Branch Accounts
~ Branches keep their own records ~ Head office keeps records for branches
Procedures: Separate trial balances for the head office and the branches Separate trading and profit and loss accounts for the head office and the branches Separate balance sheets for the head office and the branches
Procedures: Branch adjustment account (= Branch trading account) Branch profit and loss account Trading and profit and loss account for the whole business
IN BRANCH BOOKS:
HEAD OFFICE CURRENT ACCOUNT IS OPENED TO RECORD TRANSACTIONS
BETWEEN THEM
Branch Current $ X X Goods in Transit Remittance from branch Cash in Transit Bal c/f $ X X X X X
$ X X X
SEPARATE TRADING AND PROFIT AND LOSS ACCOUNTS AND BALANCE SHEETS
WOULD BE PREPARED FOR THE HEAD OFFICE AND THE BRANCH(ES)
10
Transactions
1 Opening Stock
11
Transactions
4 Goods sent from HO to Branch [cost+profit] 5 Goods returned from Branch to HO 6 Cash sales/Credit sales
12
Transactions
7 Closing stock
13
Transactions
10 Branch expenses Dr Branch Current paid by Head Office Cr Cash/Bank 11 Branch expenses No entry paid by Branch 12 Administrative Dr Branch Current charges for services Cr HO P&L rendered by HO to (Income) Branch
14
Transactions
13 Provision for Unrealized Profit (Branch & Goods in Transit)[cost+profit] 14 Goods in Transit(GIT)
No entry
NO entry
No entry
15
17 Profit made by HO
18 Cash remittances from the branch
No entry
Dr HO Current Cr Bank Or Dr Remittance to HO Cr Bank Dr HO Current Cr Remittances to HO
INTER-COMPANY TRANSACTIONS
IT WOULD NOT BE TRANSFERRED TO THE TOTAL COLUMN OF THE
TRADING AND PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET
17
EXAMPLE -1
Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Cash and Bank 114300 80800 Debtors 360000 40000 HO Current 146000 Branch Current 194000 Fixed assets 1532000 152000 Stock,1Jan 1997 60000 36000 Creditors 96000 10000 Prov. For dep 38300 3800 Remittances to HO 11000 Remittances from Branch 10000 19 1200000 Capital
Retained Profits Purchases and Sales Good sent to branch Good from HO Selling Expenses 120000 Service Charged Received 5000 Administrative Expenses 245000 3525300 3525300
HO
Additional information: 1. Goods purchased by the HO are sent to the branch at cost 2. Stock at 31 Dec 1997: HO $80000; Branch $10600 3. Depreciation is to be provided at 10% on cost per annum 4. Administrative expenses include an annual charge of $5000 for services rendered by the head office Required: 20 for the year ended 31Dec Prepare final accounts of HO and Branch 1997
Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales Good Sent to Branch Less COGS Opening Stock Purchases Goods from HO 1400 664 2064 60 900 960 880 36 616 652 10.6 860 860 96 900 996 1402.6 168.4 168 276 612.4 790.2 2260 2260
80+10.6+48
641.4 218.6 -
138.6 857.4
Gross profit 1184 Add: Service charges received 5 Less: Depreciation 153.2 Selling expense 120 Admin. Exp.(WK2)245 518 Net profit 670.8
15.2 48 36
21
99.2 119.4
245+36-5
WK1: The total closing stock should be included Goods in transit as GIT are still unsold goods at year end but those goods are transported on the way => 80+10.6+48 = 138.6 Wk2: The total administrative expenses should deduct the interCompany service charges of $5000 => 24.5+36-5=276
22
HOs Book:
Branch Current
$ $ Bal b/f 194000 Goods in Transit Branch net profit 119400 (664000-61600) 48000 Remittance from branch 10000 Cash in Transit (11000-10000) 1000 Bal c/f 254400
313400
Branchs Book: HO Current $ Remittance to HO 11000 Bal b/f Bal c/f 254400 Net profit 265400
313400
$ 146000 119400 265400
23
Balance Sheet as at 31 Dec 1997 HO Branch $000 $000 $000 $000 Fixed Assets Less provision for Dep Current Assets Stock Goods in Transit Branch Current Debtors Cash and Bank Cash in Transit Less Current Liabilities Creditors Working Capital Capital Retained profit Head Office Current 80 48 254.4 360 114.3 1 857.7 96 1532 191.5 1340.5 152 19 133 10.6 80+10.6+48 40 80.8 131.4 10 761.7 121.4 2102.2 254.4 1200 112+670.8+119.4 902.2 254.4 24 212.2 254.4
Total $000 $000 1684 210.5 1437.5 138.6 400 196.1 734.7 106 628.7 2102.2 1200 902.2 2102.2
114.3+80.8+1
THE HEAD OFFICE SUPPLIES GOODS TO ITS BRANCH WITH AN INVOICE PRICE AT COST PLUS PROFIT GOODS SENT TO BRANCH A/C AND GOODS RECEIVED FROM HO A/C ARE VALUED AT INVOICE PRICE. IF THERE IS UNSOLD STOCK AT THE END OF THE
ACCOUNTING PERIOD, THE UNREALIZED PROFIT-IN-STOCK MUST BE ELIMINATED FROM THE CONSOLIDATED FINAL ACCOUNTS A PROVISION FOR UNREALIZED PROFIT A/C WILL BE OPENED TO MEASURE UNEARNED PROFIT INCLUDED IN THE CLOSING STOCK OF THE BRANCH AND REFLECT IN THE HOS BOOK
26
27
Account entries
Increase in Provision Dr P/L Cr Provision for unrealized profit Decrease in Provision Dr Provision for unrealized profit Cr P/L The increase or decrease in the provision should be entered in the profit and loss a/c The balance should be appear in the balance sheet under Current Liabilities The total stock= stock in HO+stock in branch+stock in transit - provision for unrealized profit
28
Goods sent form the head office are charged to the branch At cost plus 10% the closing stock was valued as follows:
Date HO 31 Dec 1991 80000 (1st year of business) 31 Dec 1992 96000 31 Dec 1993 84000 31 Dec 1994 108000
Branch 66000
86900 71500 75900
30
91 Dec 31
P/L
$ 8000
Bal b/d
8400 8400
94 Jan 1
Bal b/d
6950
31
STOCK LOSS
Normal stock loss
Related to the ordinary activities of the business e.g. Obsolete stock, damaged stock No entry needed
32
No entry
Colour Toys Ltd. has its head office in Central and a branch in Shatin and separate final accounts are prepared for HO and Branch. All goods sold by branch are supplied by the HO at cost plus 10% Trial Balance as at 31 December as at 31 Dec 1997 HO Branch $ $ $ $ Share Capital 260000 Profit and loss account 125000 HO Current 79500 Branch Current 85000 Fixed assets 345000 70000 Stock,1Jan 1997 48500 15400 Debtors/Creditors 60400 35000 14700 37200 Prov. For dep 13700 16400 Remittances to HO 26000 35 22000 Remittances from Branch
Bank and cash Purchases and Sales Good sent to branch Good from HO Provision for unrealized profit Administrative Expenses 31000 840800
$ 15900 255000
HO
Additional information: 1. Stock as at 31 Dec 1997 excluding goods in transit was valued at followings: Head office, at cost $32600 Branch, at cost to branch - received from HO $16500 - own purchases $8000
Branch $ $ $ 3100 229700 44600 199700 154000 148500 1400 10500 840800 332800 332800
The branch stock at 31 Dec 1996 consisted wholly of goods 36 received from the head office
2. On 20 Nov 1997 some goods received by the branch from the head office were destroyed by fire. No entry has been made for this loss. The cost of these goods to the branch was $11000 3. Depreciation is to be provided on fixed asset at 2% per annum on cost Required Prepare final accounts for HO and Branch separately as at 31 Dec 1997
37
Trading and profit and loss a/c for the year ended 31 Dec 1997 HO Branch Total $000 $000 $000 $000 $000 $000 Sales Good Sent to Branch Less COGS Opening Stock (WK1) 48.5 Purchases 255 Goods from HO 303.5 Less:Fire loss (WK2) Less Closing stock(WK3)32.6 Gross profit Less: Depreciation 6.9 Fire loss Administrative 31 Prov for Unrealized profit 0.6
(1.5+5)-1.4
429.4 429.4
16.5+8
270.9 112.8
38.5
38
1.4 11 10.5
22.9
8.3 10 41.5
59.8
74.3
3.8
78.1
WK1: HO and Branch value stock on different bases in this case. HOs Stock is valued at cost; while Branchs stock is valued at mark-up. Total opening stock should be recorded at cost price HO+Branch(at mark up) Opening prov. for unrealized profit = 48.5+15.4+1.4 = 62.5 WK2: Fire loss in total column should be recorded at cost price rather than mark-up price Invoice price = Cost + Profit Cost = Invoice Price Profit = 1.1 1.1*10/110 = 10 39
WK3: Total closing stock should be included HOs stock, Branchs Stock and Goods in transit HOs stock and Branch (own purchases)s stock are valued at cost;while Branch (received from HO)s stock and Goods in transit are valued at mark-up. Those goods should be adjusted at cost price Total closing stock should be included: 32.6+8+(16.5-16.5*10/110)+(1.1-1.1*10/110) = 60.6
40
WK4 :
Provision for unrealized profit Bal b/f P/L 1400 600 2000
41
Balance Sheet as at 31 Dec 1997 HO Branch $000 $000 $000 $000 Fixed Assets Less provision for Dep Current Assets Stock Goods in Transit Branch Current(WK1) Debtors Cash and Bank Cash in Transit 32.6 5.5 57.3 60.4 15.9 1 175.7 345 20.6 324.4 24.5 14.7 3.1 42.3 37.2 70 17.8 52.2
Total $000 $000 415 38.4 376.6 60.6 75.1 23 158.7 72.2 -
Less Current Liabilities Creditors 35 Prov for unrealized 2 profit Working Capital Capital Retained profit Head Office Current WK2)
15.9+31+4
Branch Current Goods in transit 5500 Remittance from branch22000 Cash in transit (26000-22000) 4000 Bal c/f 57300 88800
HO Current 26000 Bal b/f 57300 Branch net profit 43 833000 79500 3800 833000
ACCOUNT KEPT BY HO
THE BRANCH DO NOT KEEP THEIR WON RECORDS, THE HO WILL KEEP ALL
ACCOUNTING RECORDS FOR THE BRANCH TRANSACTIONS
45
Transactions
Opening stock balance
Accounting entries
Branch stock a/c-opening debit balance recorded as cost plus profit Branch Stock Adjustment a/cOpening Credit balance recorded as Profit portion only Dr Branch Stock [cost+profit] Cr Goods sent to Branch [cost] Cr Branch stock adjustment [profit] Dr Goods sent to Branch [cost] Dr Branch stock adjustment [profit] Cr Branch Stock [cost+profit]
47
Transactions
Credit Sales at the Branch
Accounting entries
Dr Branch Debtors (selling price) Cr Branch Stock Dr Branch Cash (selling price) Cr Branch Stock Dr Branch Stock (selling price) Cr Branch Debtors Dr Branch Profit and loss Cr Branch Debtors Dr Branch Profit and loss Cr Cash/Bank Dr Cash/Bank Cr Branch Profit and loss
48
Transactions
Accounting entries
recorded as cost plus profit will be entered on the credit side as closing debit balance Branch stock adjustment a/c- actual stock + GIT recorded as Profit portion will be entered on debit side as closing credit balance
Net amount of Goods sent to Branch deducted from HO Purchases a/c and transfer to trading a/c
Branch transferred Stock adjustment to branch P/L Treatment of Branch net profit
Dr Branch Stock Adjustment Cr Branch Profit and loss Dr Branch 49 Profit and loss Cr Head Office profit and loss
Sino Ltd. Sends goods at the selling price to the branch. The selling price is cost plus 10 per cent. The branch accounts are maintained by the head office. Transactions between the head office and the branch for the year ended 31 December 1997 were as follows:
Opening stock at branch at selling price Goods sent to branch at cost Goods returned to the head office at cost Credit sales by branch Cash sales by branch Goods returned to branch at selling price Closing stock at branch at selling price 51 Closing goods in transit at selling price $ 110,000 750,000 50,000 354,000 350,000 33,000 171,500 37,500
Branch Stock(SP) $ Bal b/f 110000 Return to HO (50000*1.1) Gd sent to branch Branch debtors (750000*1.1) 825000 Branch cash Branch debtors-return 33000 Bal c/f (171500+37500) 968000 Branch Adjustment(Profit) Return to HO Bal b/f (110000*10/110) (55000*10/110) 5000 Branch stock (75000*0.1) Branch P/L 61000 Bal c/f(209000*10/110) 19000 85000 $
$ 55000 354000 350000 209000 968000 $ 10000 75000 85000 $ 750000 750000
Transactions
Accounting entries
Dr Branch Stock Adjustment [cost+profit] -Normal Loss event related to ordinary Cr Branch Stock activities of the business e.g. pilferage, stock wastage, unaccounted stock -Abnormal Loss caused by exceptional event e.g. fire, burglary etc -Goods lost in transit Dr Branch Profit & Loss [cost] Dr Branch Stock Adjustment [profit] Cr Branch Stock [cost+profit]
Dr Branch adjustment [profit] Dr Profit & Loss [cost] Cr Branch Stock 53 [cost+profit]
Transactions
Accounting entries
Dr Goods sent branch A [cost] Dr Branch A Adjustment [profit] Cr Branch A Stock [cost+profit] Dr Branch B Stock [cost+profit] Cr Good sent to branch B [cost] Cr Branch B stock [cost+profit]
Dr Branch Adjustment Cr Branch Stock [with the total reduction off the selling price]
-Goods are sent to the branch Dr Branch Stock [cost+profit] at mark up lower than selling Cr Branch adjustment [profit] price Cr Goods sent to branch [cost]
-Goods are sold to customers with an additional mark up Dr Branch Stock Cr Branch adjustment [profit]
54
Transactions Cash Misappropriation -loss from the theft of the cash takings
Accounting entries
Dr Cash Misappropriated Cr Cash
55
Joyce Ltd. Has a head office in Central and two branches, one in Shatin and the other in Tsuen Wan. Branch accounts are maintained by the head office. Goods are invoiced to Shatin at cost plus 20 per cent. This is the selling price. Joyce Ltd. Sent goods at cost plus 25 per cent to Tsuen Wan. The selling price in this branch was cost plus 30 per cent.
The head office books showed the following balances related to transactions between the head office and its two branches for the year ended 31 December 1997: Shatin Tsuen Wan
Opening stock at cost Credit sales by branches $ 100,000 800,000 $ 56,000 476,840
57
$
Goods sent to branches at cost Goods returned by branches at cost 806,000 80,000
$
400,000 --
64,000
13,500 340,200 2,000 500
Returns by debtors
Branch transfer at selling price from Shatin To Tsuen Wan
2,400
--
58
960
$
Closing stock at selling price Goods in transit from head office to Shatin 91,680
$
117,000
At selling price
Expenses
4,800
26,800 34,500
Any stock unaccounted for may be regarded as pilferage and normal wastage.
59
Shatin Branch
Bal b/f (100000*1.2) Gd sent to branch (806000*1.2)
Branch Stock(SP) $ 120000 Branch debtors Return to HO (80000*1.2) 967200 Fire loss (64000*1.2) Branch adj.-reduction in selling price
Branch Adjustment (Profit) $ $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) 20000 Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) 161200 Branch adj.-reduction in selling price 13500 Goods Sent to Branch(cost) $ $ Gd return to HO 80000 Branch stock 806000 Branch Debtors(SP) $ $ Branch stock 800000 60 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Fire loss 64000
Shatin Branch
Branch Stock $ Bal b/f (100000*1.2) 120000 Branch debtors Gd sent to branch Return to HO (80000*1.2) (806000*1.2) 967200 Fire loss (64000*1.2) Branch debtors-return 2400 Branch adj.-reduction in selling price
Branch Debtors $ $ 340200 Branch stock 800000 Branch cash Discount allowed 2000 Bad debts 500 Branch stock-return 2400 Branch profit and loss account for the year ended 31 Dec 1997 $ $ Fire loss 64000 Discount allowed 2000 Bad debts 500
61
Shatin Branch
Branch Stock $ Bal b/f (100000*1.2) 120000 Branch debtors Gd sent to branch Return to HO (80000*1.2) (806000*1.2) 967200 Fire loss (64000*1.2) Branch debtors-return 2400 Branch adj.-reduction in selling price Branch transfer
13500 960
$ 20000 161200
Branch Adjustment $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) Branch adj.-reduction in selling price 13500 Branch transfer 160 (960*20/120) Goods Sent to Branch $ Gd return to HO 80000 Branch stock Branch transfer 62 (960*100/120) 800
$ 806000
Branch Stock $ $ 800000 Bal b/f (100000*1.2) 120000 Branch debtors Gd sent to branch Return to HO (80000*1.2) 96000 (806000*1.2) 967200 Fire loss (64000*1.2) 76800 Branch debtors-return 2400 Branch adj.-reduction in selling price 13500 Branch transfer 960 Pilferage & wastage(Bal fig) 5860 Bal c/f (91680+4800) 96480 1089600 1089600 Branch Adjustment $ $ Return to HO(80000*0.2) 16000 Bal b/f (100000*0.2) 20000 Fire loss (64000*0.2) 12800 Branch stock (806000*0.2) 161200 Branch adj.-reduction in selling price 13500 Branch transfer 160 (960*20/120) Pilferage & wastage 5860 Branch P/L(Bal fig) 116800 63 Bal c/f(96480*20/120) 16080 181200 181200
Shatin Branch
Goods Sent to Branch $ 80000 Branch stock 800 725200 806000 Branch Debtors $ 800000 Branch cash Discount allowed Bad debts Branch stock-return Bal c/f 800000
$ 806000
Branch stock
Branch profit and loss account for the year ended 31 Dec 1997 $ $ 116800 Fire loss 64000 Branch Adj.- gross profit Discount allowed 2000 Bad debts 500 64 Expense 26800 Net profit 23500 116800 116800
$ 476840
20000
Branch Adjustment $ $ Bal b/f (56000*0.3) 16800 Branch stock (400000*0.25) 100000 Branch stock (400000*0.05) 20000 Goods Sent to Branch $ $ Branch stock 400000 Branch Debtors $ 476840 Branch cash $ 345320
Branch stock
66
Branch stock
Branch profit and loss account for the year ended 31 Dec 1997 $ $ Discount allowed 3000 Bad debts 800
67
Bal b/f (56000*1.3) Gd sent to branch (400000*1.25) 500000 Branch adj (400000*0.05) 20000 Gd sent to branch (800*1.25) 1000 Branch adj.(800*0.05) 40 Branch Adjustment $ $ Bal b/f (56000*0.3) 16800 Branch stock (400000*025) 100000 Branch stock (400000*0.05) 20000 Branch stock-branch transfer (800*0.25) 200 Branch stock (800*0.05) 40 Goods Sent to Branch $ 68 Branch stock Branch stock-branch transfer $ 400000 800
$ 476840
Bal b/f (56000*1.3) Gd sent to branch (400000*1.25) Branch adj (400000*0.05) 20000 Gd sent to branch (800*1.25) 1000 Branch adj.(800*0.05) 40 593840 593840 Branch Adjustment $ $ 16800 Branch P/L(Bal fig) 110040 Bal b/f (56000*0.3) Bal c/f(117000*30/130) 27000 Branch stock (400000*025) 100000 Branch stock (400000*0.05) 20000 Branch stock-branch transfer (800*0.25) 200 Branch stock (800*0.05) 40 137040
$ 476840 117000
69
137040
Goods Sent to Branch $ HO Purchase(bal.fig.) 400800 Branch stock Branch stock-branch transfer 400800 Branch Debtors $ 476840 Branch cash Discount allowed Bad debts Bal c/f 476840
Branch stock
Branch profit and loss account for the year ended 31 Dec 1997 $ $ 110040 Discount allowed 3000 Branch Adj.- gross profit Bad debts 800 Expense 34500 70 Net profit 71740
110040
110040
71
Account entries
Transactions
Balance transferred from goods sent to branch account to the head office purchases account Branch net profit transferred to head office profit and loss account
Accounting Entries
Dr Goods sent to branch Cr HO purchases/trading Dr Branch Profit and loss Cr HO P/L
72
The following trial balalnce was extracted from the books of Joyce Ltd Trial Balance as at 31 December as at 31 Dec 1997 Share Capital Profit and loss account Fixed assets Stock at Head Office,1Jan 1997 Debtors/Creditors Prov. for dep Purchases Sales Administrative expenses Selling expenses Bank and cash $ 800000 250000 774600 200000 3800000 225000 108000 456500 $ 1656000 300900 950000 3463200
74
$
Branch stock 1 Jan 1997-Shatin 250000 - Tsuen Wan 120000
20000
16800 6606900
Additional information: 1. On 31 Dec 1997, stock in the HO was valued at $180000 2. The branches paid local expenses and remitted all the remianing cash received from debtors to the HO. NO entry had been made about the remittances from the branches. 3. Depreciation is to be charged on the fixed asset at 10% per 75 annum on cost. Prepare final account for Joyce Ltd for the year ended 31 Dec1997
Joyce Ltd. Trading and Profit and Loss Account for the year ended 31 December 1997 $ Opening Stock Purchases Less Goods sent to Branch ($725,200 + $400,800) Less Closing Stock Cost of Goods Sold Gross Profit 3,800,000 1,126,000 2,674,000 2,924,000 180,000 2,744,000 719,200 3,463,200 Provision for Depreciation Administrative Expenses Selling Expenses Net Profit 80,000 Gross Profit 225,000 Branch Profit 108,000 - Shatin 401,440 -Tsuen Wan 814,440 23,500 71,740 814,440 3,463,200 719,200 $ 250,000 Sales $ 3,463,200
76
Joyce Ltd. Balance Sheet as at 31 December 1997 $ Fixed Assets Less Provision for Depreciation Current Assets Stock Debtors ($774,600 + $454,900 + $127,720) Bank and Cash (W1) 1,357,220 1,080,720 3,308,340 800,000 Share Capital 280,000 Profit & Loss Account ($300,900 + $401,440) 520,000 Current Liabilities 350,400 Creditors 950,000 $ 1,656,000 702,340
77
3,308,340
Workings:
W1. Shatin $ Branch Debtors 340,200 340,200 Branch Cash Tsuen Wan $ 345,320 Expenses Remittances to HO 345,320 Shatin $ 26,800 313,400 340,200 Tsuen Wan $ 34,500 310,820 345,320
Note Total Stock: HO Shatin Tsuen Wan Goods in transit Provision for Unrealized Profit $ 180,000 91,680 117,000 4,800 (43,080) 78 350,400