INDEPENDENT BRANCH

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Advance Financial Accounting (FIN-611)

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

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

Advance Financial Accounting (FIN-611)

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)

Advance Financial Accounting (FIN-611)

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.)

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

To salaries

4,500

By gross profit b/d

28,900

To rent

1,960

Advance Financial Accounting (FIN-611)

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.

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

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