885125025/26 [Link] 12. BRANCH ACCOUNTS MODEL WISE ANALYSIS OF PAST EXAM PAPERS OF IPCC MODEL NO. | N-14 | M12 | N-42| M43 | N-43 | M-t4 | N-14 | M-415 | N-45 | M-16| N-16 Model — 4 s{[-[s/-[-[e][-[-/a]- Je Model - 2 -[-[-/|-/-/]-[el- [ely - Model - 3 -[twl-[el-/[-[-/[-|-[el- Model 4 Eg ee te | ee Model - 5 -[L-[-[-[-[-[4]-[-[-T- Model- 1: independent Branches Model - 2 jependent Branches Model - 3 ‘oreign Operations Model-4 — : Miscellaneous- Inter-branch transactions, Whole sale price Model - 5 heory THEORY } Classification of Branches: From an accounting point of view, branches are classified as: Inland Gate (a) Foreign Branches Not maintaining a compete set of!) Books Goods invoiced to Goods invoiced to Goods invoiced at Branch at cost (a) Branch at S.P (b) cost plus some % Analytical Method Synthetic Method Trading and (Stock & debtors (Debtors Method) P & L method Method) (i) aunty Analytical Method synthetic method T8495 & une (stock & debtors Method) ()) (Debtors Method) y P&E, column (ii) Method (iv) In case of (A)(I)(a\i): Accounting Entries in the books of Head Office (H.O.): No. Particulars Debit Credit 1. | For Cost Price of Goods sent to Branch: Branch Stock A/c Dr XXX To Goods Sent to Branch Alc XXX IPCC_Advanced Accounting_37e_Branch Accounts. 188No.4 for CAICWA & MECICEC MASTER MINDS ) 2. | For Cost Price of Goods returned by Branch: Goods Sent to Branch A/c Dr XXX To Branch Stock A/c XxX 3. | For remittance to Branch for expenses: Branch Cash Alc Or XXX To Bank A/c XxX 4, | For cash sales at Branch: Bank A/c [(or) branch cash, if money is not immediately remitted] Dr XXX To Branch Stock A/c XXX 5. | For credit sales at Branch: Branch Debtors A/c Dr OK To Branch Stock A/c XXX 6. | For Goods returned to Branch by customers: Branch Stock Alc Dr OK To Branch Debtors A/c XXX 7. | For Cash collected from Branch Debtors: Bank Avc [(or) branch cash, if money is not immediately remitted] Or XXX To Branch Debtors Alc XXX 8. | For Discount & Allowances to Debtors & Bad Debts: Branch Profit & Loss Alc Ir XOX To Branch Debtors A/c S XXX 9. | For remittances to Head Office: Bank Ac o Dr XXX To Branch Cash Alc XXX 40. | For Branch expenses: Branch Expenses A/c To Bank Alc (or branch cash, if met by Brinch) 11. | For Purchase of any Fixed Asset at Branch: Branch Asset A/c Dr XXX To Bank Alc XXX {or branch cash, if paid for by the branch) 12. | For Depreciation on Branch Assets: Branch Profit & Loss Alc Dr OK To Branch Assets A/c XXX 13. | For abnormal Loss and Goods: Branch Profit & Loss Alc (or) Dr XXX Insurance Claim A/c (if covered Insurance) Or XXX To Branch Stock A/c XXX Dr XXX Ledger Accounts and their detai 1. Branch Stock A/c: Value of opening stock is shown as opening balance on the debit side of Branch Stock A/c. Similarly, value of closing stock is shown as closing balance on the credit side of Branch Stock A/c. The balance of Branch Stock A/c will now represent Gross Profit/Loss at the branch to be transferred to Branch Profit and Loss A/c. 2. Branch Expenses Alc: The balance of Branch Expenses A/c will also be transferred to Branch Profit & Loss A/c 3. Branch Debtors A/c: The balance of this Account represents the closing Debtors 4, Goods sent to Branch Ak he balance of this account should be t/s to Purchase A/c 5. Branch Profit & Loss A/c: The balance of Branch Profit and Loss A/c will represent Net Profit/Loss at the branch to be transferred to General Profit and Loss A/c. IPCC_Advanced Accounting_37e_Branch Accounts. 189Ph: 9885125025/26 [Link] com Note: 4. Normal Loss need not be recorded separately. In case of (A) (I) (a) (ii): Under this method it is assumed that the branch has a separate entity apart from the head office and, on this basis, a branch account is opened separately for each branch in the books of head office. This account is debited with the value of benefits and ‘cash given to the branch and correspondingly credited with the value of benefits and cash received from the branch. Branch Ale Particulars Rs. Particulars Rs. To Balance b/d (Assets) By Balance b/d (liabilities if any) XXX Branch Stock XXX By Bank Branch Debtors XXX (Amount remitted by Branch) XXX Branch Petty Cash XXX XXX | By Goods sent to Branch To Goods sent to branch XXX | (Return to H.O) To Bank XXX | By Balance c/d: (Assets) (Amount remitted to branch) Branch Stock XXX To Bank XXxX| Branch Debtors XXX (Branch Exp.’s paid by H.0.) Branch PettyCash XXX XXX To Balance eld (liabilities if any) XXX To General P & L A/c (profit) XXX XXX XXX In case of (A) (I) (b & c) Accounting Entries in the books of Head Office: this system, in addition to the accounting entries passed in case of invoicing goo St price, the following entries are passed No. Particulars Rs. 1. | For Goods sent to Branch: a. Branch Stock A/c Or Invoice price To Goods Sent to Bra b. Goods Sent to Branch A/c Dr Loading on goods sent To Branch Stock Adjustment A/c 2. For Goods returned by Branch to H.O.: a. Goods Sent to Branch A/c Dr Invoice price To Branch Stock A/c b, Branch Stock Adjustment A/c Or Loading on goods returned To Goods Sent to Branch A/c Ledger Accounts and their details: 1. Branch Stock A/c: There will be an opening balance in this account representing opening stock at branch at selling price and a closing balance representing closing stock at branch at selling price. After all the relevant entries have been passed to this account as already detailed, both sides of this account should agree. Any difference represents surplus or deficiency of stock and will be transferred to a stock discrepancy account The stock discrepancy account will be closed by transferring the loading to branch stock adjustment account and the balance to branch profit & loss A/c, 2. Branch Stock Adjustment A/c: This account will be credited with the Stock Reserve A/c for the loading included in the opening branch stock (at selling price). Similarly, this account is debited with the Stock Reserve A/c for loading included in the closing branch stock. The difference remaining in this account (after all the relevant entries have been passed) represents gross profit/loss at branch and will be transferred to branch Profit & Loss Alc. IPCC_Advanced Accounting_37e_Branch Accounts. 190No.4 for CAICWA & MECICEC MASTER MINDS ) 3. Loss of Goods: This will be treated in the following manner: Normal Loss: Since branch stock adjustment account discloses gross profit, normal loss should be charged to this account by the following entry’ 1. | Branch Stock Adj. Ale Dr Selling Price To Branch Stock Ale Abnormal Loss: The following entries will be passed for recording abnormal loss: 4. [Abnormal Loss A/c Dr Selling Price To Branch Stock A/c 2._| Branch Stock Adj. Alc Or Load on goods lost To Abnormal Loss A/c 3._| Branch Profit & Loss A/c Or Cost price of goods lost To Abnormal Loss A/c If the goods are insured, insurance claim account will be debited instead of branch Profit & Loss A/c to the extent of claim admitted and the balance will be debited to branch profit & loss Alc. In case of (A) (I) (b & c) Accounting Entries in the books of Head Office: The branch account will be prepared on the same line as discussed earlier, but as goods are supplig’to the branch at loaded price. (1) ‘Opening stock, (2) goods sent to branch, (3) goods ret ly branch and (4) closing stock will be recorded in the branch account at this price. Hen ‘der to ascertain the true proft or loss at branch it will be necessary to eliminate the loads ing down these items to cost level. For this purpose the following adju: ‘will be made: 1. | For load on Goods sent to Brands Goods Sent to Branch A/c QS Dr XXX To Branch Alc SS 2. | For load on Goods returned by Branch to H.0. Branch Ale Or XxX To Goods Sent to Branch Alc XXX 3. | For load included in the Opening Stock: Stock Reserve Ale Or XXX To Branch Alc XXX 4. | For load included in the Closing Stock: Branch Ale Or XXX To Stock Reserve Ale XXX The balance of stock reserve account at the end of each year will be carried forward to the next year for being transferred to the branch account of that year as shown in item (3) above In case of (A) (I) (a) (iii): In this approach, profit & loss accounts are prepared considering each branch as a separate entity. The main advantage in this method is that, it is easy to prepare and understand In_case of (A) (l) (b & c) {iv}: Without writing up a Branch Stock and Branch Adjustment ‘Account, it is also practicable to record alll the relevant figures only in one account, by having two separate columns, one to show the value of goods sent out to branch at cost, entries wherein will be part of the double entry system and in second column memorandum entries in respect of the value of the same stock at the selling price. Under such a method, while the first ‘column would disclose the amount of gross profit and the value of stock carried forward at cost the second column would not disclose profit or loss, but would balance by including therein the value of closing stock at selling price provided that there has been no physical loss of stocks. IPCC_Advanced Accounting_37e_Branch Accounts. 191Ph: 9885125025/26 [Link] Distinction between Wholesale Profit & Retail profit at Branch: In order to know whether self-retailing through branches is more profitable than wholesaling, it is necessary to make a distinction between wholesale profit and retail profit. The true profit of a branch can, therefore, be determined by charging it with the wholesale price of goods sent and crediting the head office trading account with the same amount, Since closing stock of branch, in such a case, will be valued at wholesale price it will be necessary to create a provision for unrealised profit ‘on stock by debiting the head office Profit & Loss A/c. For E.g.: Let the cost of an Article be Rs.100, wholesale price be Rs.140 and retail price be Rs.150. If itis sold through a retail branch, the profit earned will be Rs.50. But the true profit of the branch is, however, Rs.10 only, because Rs.40 could have been earned even without having the branch i.e. by selling it on wholesale basis to others. ETERS TES Problem 4: The Bombay Traders invoiced goods to its Delhi branch at cost. Head Office paid all the branch expenses from its bank account, except petty cash expenses which were met by the Branch. Alll the cash collected by the branch was banked on the same day to the credit of the Head Office. The following is a summary of the transactions entered into at the branch during the year ended December 31, 2012 Particulars Rs. Particulars Rs. Stock January 1, 2012 7,000 | Bad Debts 600 Debtors, January 1, 2012 12,600 | Goods returned by customers 500) Petty Cash, January 1, 2012 200 | Salaries & Wages 6,200 Goods sent from H.0 26,000 | Rent & Rates) 1,200 Goods retumed to H.0. 1,000 | SundgeXpenses 800 Cash Sales 17,500 Gaereved from Sundry Debtors | 28,500. Credit Sales 28,400 }SRdck Dec. 31°, 2012 6,500 Allowances to customers 20g Gsbtors, Dec. 31°, 2012 9,800 Discount to customers 1d6@) Patty Cash, Dec. 31%, 2012 100 Prepare: (a) Branch Account (Debtof\Withod), (b) Branch Stock Account, Branch Profit & Loss Account, Branch Debtors and Brinch Expenses Account by adopting the Stock and Debtors Method and (c) Memorandum Branch Trading and Profit & Loss Account to prove the results as disclosed by the Branch Account. (SM) (Ans: Profit Rs.9,400) (Solve problem no. 1 of assignment problems as rework) Note: Problem 2: Harrison of Chennai has a branch at New Delhi to which goods are sent @ 20% above cost. The branch makes both cash and credit sales. Branch expenses are met partly from H.O. and partly by the branch, The statement of expenses incurred by the branch every month is sent to head office for recording, Following further details are given for the year ended 31% December, 2012 Particulars Rs. Cost of goods sent to Branch 2,00,000 Goods received by Branch till 31-12-2012 at invoice price 2,20,000 Credit Sales for the year 1,865,000 Cash Sales for the year 59,000 Cash Remitted to head office 2,22,500 Expenses paid by H.O. 12,000 Bad Debts written off 750 IPCC_Advanced Accounting_37e_Branch Accounts. 192No.4 for CAICWA & MECICEC MASTER MINDS ) Balance as on: Particulars 4-1-2012 (Rs) 34-12-2012 (Rs.) Stock 25,000 (Cost) 28,000 (Invoice price) Debtors 32,750 26,000 Cash in Hand 5,000 2,500 ‘Show necessary ledger accounts in the books of the head office and determine the Profit and Loss of the Branch for the year ended 31st December, 2012. (SM) (Ans.: Branch Gross profit Rs.39,000; Branch Net profit Rs.16,260) (Solve problem no. 2 of assignment problems as rework) Note: Problem 3: Red and White of Mumbai started a branch at Bangalore on 1.4.2012 to which goods were sent at 20% above cost. The branch makes both cash sales and credit sales Branch expenses are met from branch cash and balance money remitted to H.O. The branch does not maintain double entry books of account and necessary accounts relating to branch are maintained in H.0. Following further details are given for the year ending on 31.3.2013: Particulars Rs. Cost of goods sent to branch 41,00,000 Goods received by branch till 31.3.2013 at Invoice pric 1,08,000 Credit sales for the year 1,16,000 Closing debtors on 31.3.2013 41,600 Bad debts written off during the year 400 Cash remitted to H.O. 86,000 Closing cash on hand at branch on 31.3.3" 4,000 Cash remitted by H.O, to branch dur jear 6,000 Closing stock in hand at branch at it price 12,000 Expenses incurred at branch 24,000 Draw up the necessary Ledger Accounts like Branch Debtors Account, Branch Stock Account, Goods sent to Branch Account, Branch Cash Account, Branch Expenses Account and Branch Adjustment A/c for ascertaining gross profit and Branch Profit and Loss A/c for ascertaining Branch profit (PM)(Ans: Branch Gross Profit Rs.70,000; Net profit Rs.45,600) (Solve problem no. 3 of assignment problems as rework) Note: Problem 4: (PRINTED SOLUTION AVAILABLE) Hindustan Industries Mumbai has a branch in Cochin to which office goods are invoiced at cost plus 25%. The branch sells both for cash and on credit. Branch Expenses are paid direct from head office, and the Branch has to remit all cash received into the Head Office Bank Account. From the following details, relating to calendar year 2012, prepare the accounts in the Head Office Ledger and ascertain the Branch Profit. Branch does not maintain any books of account, but sends weekly returns to the Head Office’ Particulars Rs. Goods received from Head Office at invoice price 6,00,000 Returns to Head Office at invoice price 12,000 ‘Stock at Cochin as on 1st Jan., 2012 60,000 Sales in the year - Cash 2,00,000 Credit 3,60,000 ‘Sundry Debtors at Cochin as on 1st Jan, 2012 72,000 IPCC_Advanced Accounting_37e_Branch Accounts. 193Ph: 9885125025/26 [Link] Cash received from Debtors 3,20,000 Discount allowed to Debtors 6,000 Bad debts in the year 4,000 Sales returns at Cochin Branch 8,000 Rent, Rates, Taxes at Branch 18,000 Salaries, Wages, Bonus at Branch 60,000 Office Expenses 6,000 Stock at Branch on 31st Dec. 2012 at invoice price 4,20,000 (SM)(Ans: Net profit Rs.35,600) Note: Problem 5: (PRINTED SOLUTION AVAILABLE) Accounting treatment of direct payments by head office to discharge direct purchase by branch: Buckingham Bros, Bombay have a branch at Nagpur. They sent goods at cost to their branch at Nagpur. However, direct purchases are also made by the Branch for which payments are made at head office. All the daily collections are transferred from the Branch to the head office. From the following prepare Nagpur branch account in the books of head office: Particulars Rs. Particulars Rs. Opening Balance on 1.1.90: Bad debis| 4,000 imprest cash 2,000 | Discount to customers 2,000 ‘Sundry debtors 25,000 | Remittanges to H.0. 7,65,000 (Rece HO.) Stock: Transferred from H.O 24,000 | Re: s to H.O. 5,000 (r ived by H.O. so far) Direct Purchases 16,0006Bkantth exp. directly paid by H.O. | 30,000 Cash sales 45,08 Grosing Balance (31-12-90): Credit sales 1,3Q:889,7 Stock: Direct purchases 10,000 Direct purchases Rw Transfer from H.O. 15,000 Returns from customers ‘S000 | Debtors 2 Goods sent to branch fromH.0. | 60,000 | imprest cash 2 Transfer from H.O. for petty exp. 4,000 (SM) (Ans.: Branch net profit 15000) Note: Problem 6: Pawan, of Delhi has a branch at Jaipur. Goods are invoiced to the branch at cost plus 25%. The branch is instructed to deposit the receipts every day in the head office account with the bank. All the expenses are paid through cheque by the head office except petty cash expenses which are paid by the Branch. From the following information, you are required to prepare Branch Account in the books of Head office: Particulars Rs. ‘Stock at invoice price on 1.4.2012 1,64,000 Stock at invoice price on 31.3.2013 1,92,000 Debtors as on 1.4.2012 63,400 Debtors as on 31.3.2013 84,300 Furniture & fixtures as on 1.4.2072 46,800 Cash sales 8,02,600 Credit sales 7,44,200 IPCC_Advanced Accounting_37e_Branch Accounts. 194No.4 for CAICWA & MECICEC MASTER MINDS ) Goods invoiced to branch by head office 12,56,000 Expenses paid by head office 2,64,000 Petty expenses paid by the branch 20,900 Furniture acquired by the branch on 1.10.2012 (payment was made by the 5,000 branch from cash sales and collection from debtors) Depreciation to be provided on branch furniture & fixtures @ 10% p.a. on WDV basis. (PM) (Ans: Branch profit & loss ale Rs.2,74,570) (Solve problem no. 4 of assignment problems as rework) Note: Problem 7; Widespread invoices goods to its branch at cost plus 20%. The branch sells goods for cash as well as on credit, The branch meets its expenses out of cash collected from its debtors and cash sales and remits the balance of cash to head office after withholding Rs. 10,000 necessary for meeting immediate requirements of cash. On 31° March, 2012 the assets at the branch were as follows: Particulars Rs.(000) Cash in Hand 10 Trade Debtors 384 Stock, at Invoice Price 7,080 Furniture and Fittings e 500 During the accounting year ended 31% March, 201, joice price of goods dispatched by the head office to the branch amounted to Rs.1 cr fakhs, Out of the goods received by it, the branch sent back to head office goods in it Rs.72,000. Other transactions at the branch during the year were as follows: xe Particulat Rs.('000) Cash Sales 9,700 Credit Sales 3,140 Cash collected by Branch from Credit Customers 2,842 Cash Discount allowed to Debtors 58 Returns by Customers 102, Bad Debts written off 37, Expenses paid by Branch 42 On 1st January, 2013 the branch purchased new furniture for Rs.1 lakh for which payment was made by head office through a cheque. ‘On 31% March, 2013 branch expenses amounting to Rs.6,000 were outstanding and cash in hand was again Rs.10,000. Furniture is subject to depreciation @ 16% per annum on diminishing balance method. Prepare Branch Account in the books of head office for the year ended 31% March, 2013 (PM) (Ans..Net Profit Rs.1,096) (Solve problem no. 5 of assignment problems as rework) Note: Problem 8: Preparation of Company trading and profit and loss alc.: Arnold of Delhi trades in Ghee and oil. It has a branch at Lucknow. He dispatches 25 tins of oil @ Rs.1,000 per tin and 15 tins of Ghee @ Rs.1,500 per tin on 1° of every month. The Branch incurs some expenditure which is met out of its collections this is in addition to expenditure directly paid by H.O, Following are the other details: Particulars Delhi Lucknow Purchases: Ghee 14,75,000 Oil 29,32,000 IPCC_Advanced Accounting_37e_Branch Accounts. 195Ph: 9885125025/26 [Link] Direct exp. paid by HO. 3,83,275 14,250 Sales: Ghee 18,46,380 342,750 Oil 27,41,250 3,15,730 Collection during the year — 6,47,330 (including cash sales) Remittance by branch to H.O. = 613,250 eS Delhi Lucknow! 1112 31.42.12 1412 31.42.12 Stock: Ghee 7,50,000 3,12,500__| 17,000 13,250 Oil 3,50,000 417,250 | 27,000 44,750 Debtors 7,32,750 = 75,750 2 (Cash on hand 70,520 35,250 7,540 72,350 Furniture & Fittings 21,500 19,350 6,250 5,625 Plant & Machinery 3,07,250 7,73,500 = = 1. Additions to Plant & Machinery on 1.1.12 Rs.6,02,750. 2. Rate of Depreciation: Furniture & Fittings @ 10%, Plant & Machinery @ 15% (already adjusted in the above figures) 3. The Branch Manager is entitled to 10% commission after charging such commission whereas, the General Manager is entitled to 10% commission on overall company profits after charging such commission. General Manager is also entitled to a salary of Rs.2,000 p.m. General expenses incurred by H.O. Rs.24,000. Prepare Branch Alc in the H.O. books and also pregaf@Ne Ammold’s Trading and P & L Ale S (SM) (excluding branch transactions) (Ans.: Branch Nes '53,032, Net Profit of the company ~ 4,21,325, Branch closing balance: - debtors Rs. 86,900) (Solve pr 10. 6 of assignment problems as rework) Note: Problem 9: Accounting treatment of when goods sent to branch at whole sale price and branch sells goods at retail price: Beta having head office at Mumbai has a branch at Nagpur. The head office does wholesale trade only at cost plus 80%. The goods are sent to branch at the wholesale price viz., cost plus 80%. The branch at Nagpur is wholly engaged in retail trade and the goods are sold at cost to H.O. plus 100%. Following details are furnished for the year ended 31 March, 2013: Head Office | Branch Office Particulars (Rs) (Rs) Opening Stock (as on 1-4-2012) 2,25,000 = Purchases 25,50,000 = Goods sent to branch (Cost to H.O. plus 80% 954,000 = Sales 27,81,000 9,50,000 Office Expenses 90,000 8,500 Selling Expenses 72,000 6,300 Staff Salar 65,000 12,000 Required: Prepare Trading and Profit and Loss Account of the head office and branch for the year ended 31% March, 2013, {PM) (N - 07, M - 15)(Ans.: #.0 profit Rs. 13,889,000, Branch Profit- Rs.66200) Note: IPCC_Advanced Accounting_37e_Branch Accounts. 196No.4 for CAICWA & MECICEC MASTER MINDS ) Problem 10: Accounting treatment of when goods sent to branch at whole sale price and branch sells goods at retail price: M/s Rahul operates a number of retail outlets to which goods are invoiced at wholesale price which is cost plus 25%. These outlets sell the goods at the retail price which is wholesale price plus 20%. Following is the information regarding one of the outlets for the year ended 31.3.2012 Particulars Rs. Stock at the outlet 14.2011 30,000 Goods invoiced to the outlet during the year 3,24,000 Gross profit made by the outlet 60,000 Goods lost by fire 2 Expenses of the outlet for the year 20,000 Stock at the outlet 31.3.2012 36,000 You are required to prepare the following accounts in the books of Rahul Ltd. for the year ended 31.3.2012: Outlet Stock A/c, Outlet Profit & Loss A/c and Stock Reserve A/c. (SM)Ans.: Outlet Profit & Loss ~ 22000, Stock - 36000, Stock Reserve - 7200) (Solve problem no. 7 of assignment problems as rework) Note: In case of (AXIl) (Independent Branches): Indeper account books for recording their transactions, therefg feparate trial balance of each branch can be prepared. The head office maintains one lec -ount for each such branch, wherein all transactions between the head office and the, s 'és are recorded. The head office A/c in ranches maintain comprehensive branch books and Branch A/c in head offi S should tie up whereby completeness of recording of transactions can be ensured. If the branch and the head office ac; jo not tally, these must be reconciled before the preparation of the final accounts of the@S¥cem as a whole. Part | - Reasons for Disagreements: 1. Goods dispatched by the Head office not received by the branch. These goods may be in transit or loss in transit. 2. Goods returned by the branch to Head Office may have been received by the H.O. Again, these goods may be in transit or lost in transit. 3. Sum remitted by Head office to branch or vice versa remaining in transit on the closing date. 4. Receipt of income or payment or expenses relating to the Branch transacted by the head office or vice versa, hence not recorded at the respective ends wherein they are normally to be recorded The technique of reconciliation has been illustrated through the example given below: i Head Office Branch Office Particulars Dr. Cr. Dr. cr Goods send to Branch 1,50,000 - Goods reed. from H.0. Alc = | 1,40,000 Branch Alc 4,12,000 Head office A/c = - 78,500 On analysis of Branch A/c in Head office books and Head office A/c in branch books, you find: 4. Rs.15,000 remitted by the branch has not been received, hence not recorded in the head office books 2. Direct collection of Rs.10,500 from a customer of the branch by Head office not informed to the branch, hence not recorded by the branch, IPCC_Advanced Accounting_37e_Branch Accounts. 197Ph: 9885125025/26 [Link] 3. Asum of Rs.14,500 paid by branch to the suppliers of head office not recorded at Head office 4. Head office expenditure allocation to the branch Rs.12,000 not recorded in the branch 5. Rs.7,500 being FD interest of head office received by the branch on oral instructions from H.O,, not recorded in the head office books, =a Head Office Branch Office Dr. Cr. Dr. Cr 1) Goods in want 5 > Goods in (Rs.10,000) Transit Alc 10,000 ToH.O Ale 10,000 Cashin Transit | Cashin Transit Ale 15,000 To Branch Alc 15,000 (No Entry) ii) Direct Collection by Hon behalf H.0. Ae 10,500 of the Branch To Debtors Ale 10,500 iy) Direct payment of Rs.14,500 ‘Sundry 14;500 by Branch on Creditors Ale behalf of H.0, To Branch Alc 14,500 ¥) Expenditure Concemed [Link] | 12,000 Allocated to To HO. Ale 12,000 Branch vi Fixed Deposit Branch Ale 7,500 interest of To Sundry Rs.7.500 Income Ale 7.500 directly received by the Branch In Brag@n B8oks Dr. Head (ccount cr. Particulars RES Particulars Rs. To Sundry Debtors A/c il esto By Balance b/d 78,500, To Balance c/d ,000 | By Goods in transit 10,000 By Branch expenses 12,000 1,00,500 1,00,500 By Balance bid 90,000 In the Books of Head Office Dr. Branch Alc cr. Particulars Rs. Particulars Rs. To Balance bid 7,12,000 | By Cash in Transit 15,000 To Sundry Income 7,500 | By Sundry Creditors 14,500 | By Balance c/d 90,000 7,19,500 719,500 To Balance bid [80,000 Therefore (i) the balance of Head Office A/c in Branch books and Branch A/c in Head Office books have tallied (ii) Adjustment are made only at the point: 4. Where the recording has been omitted, and 2. Other than the point where action has been effected In the balance sheet, goods-in-transit or cash-in-transit will be shown as assets, At the ‘commencement of the next financial year, these entries will be reversed and Transit A/c will be closed IPCC_Advanced Accounting_37e_Branch Accounts. 198No.4 for CAICWA & MECICEC MASTER MINDS ) Other adjustment: 1. Regarding Depreciation on Fixed Assets: Often, the accounts of fixed assets of a branch are maintained in the head office books. In such a case, 1. | Entry for depreciation in H.0. Books: Branch A/c Or XXX To Branch Fixed Assets A/c XX 2. |The branch passes the following entry in its own books for Depreciation: Depreciation A/c Dr XXX To Head Office A/c XXX Any purchase of fixed assets by the branch, in such a case, should be debited to head office account and credited to bank (or Supplier's A/c) in the branch books. Similarly, in head office books the same should be debited to branch fixed assets account and credited to Branch A/c. 2. Regarding Inter-Branch Transactions: Where there are number of branches, inter-branch transactions are likely to take place, e.g., cash or goods sent by one branch to another or expenses incurred by one branch on behalf of another. Such transactions are usually adjusted assuming that they were entered into under the instructions from the H.O. Suppose Kolkatta branch transfers some goods to Mumbai branch under the directions of the H.O. The entries will be as follows 1. | In the books of Kolkatta Branch: SS Head Office Alc KY Dr To Goods Supplied to Branch Ale XXX. YOK 2. | Inthe books of Mumbai Bran; Goods received from Branch Dr} XXX To Head Office We oS XXX 3. | In the books of Head OFFS Mumbai Branch Alc Dr} Xxx To Kolkatta Branch A/c XXX Note: 1. Inter-branch transactions without the knowledge of head office may be passed as between the branches only in the usual manner. 3. Regarding Charges made by H.0.: The head office may make a charge to the branch for services rendered by it, or for a portion of head office overheads applicable to branch management on the principle that the branch should be debited with all relevant expenses and charges applicable to it 1. | In head office books the entry will be: Branch Alc Dr XXX To The Relevant Expenses A/c XXX 2. | In Branch books the entry will be: The Relevant Expenses Alc Or OK To Head Office Ale XXX 4, Remittances A/c: Sometimes the branch remits cash to the head office quite frequently, In such a case, the head office finds it convenient to open a branch remittances account The periodical total of this account will be transferred to the credit of branch account. If the branch so desires, it can also open a remittances to head office account the periodical total of which will be transferred to the debit of head office account. Similar treatment can be made for goods sent to branch also. IPCC_Advanced Accounting_37e_Branch Accounts. 199Ph: 9885125025/26 [Link] com Part Il — Closing of Branch Books: Procedure for Closing of Branch Books at a Glance Closing of Revenue ‘Accounts —_— By transferring the By Preparing its own Closing of Assets & Liabil lity ‘Accounts os May be closed & May not be Individual balances Trading and P&L Alc transferred to the closed (if of various revenue and transferring only H.0. books. branch accounts to the the Net Profit/ Loss to needs to HO. Ale the H.0. Alc Prepare a BIS) Explanation: At the end of each financial year the branch prepares a trial balance and proceeds to close its books of accounts. The subject of closing the books consists of two activities: (a) Closing of Revenue accounts; (b) Closing of Asset & Liability accounts. Closing of Revenue Accounts: Two different methods may be applied for closing the revenue accounts. First method: Under this method the branch simply trans{@is the individual balance of various revenue accounts to the H.O. Alc, thereby closing th lue accounts. The entries will be as follows 1. | For debit balances of revenue items: Head Office A/c &S Dr XXX To Sundry Revenue _Alc’s. XXX 2. | For credit balances of revenu ‘Sundry Revenue A/c's Or XXX To Head Office Ae XXX Second method: Under this method, the branch prepares its own Trading and Profit & Loss Alc and transfers only the Net Profit or Loss (instead of all the revenue balances) to the H.O. Alc in the same way as Profit or Loss is transferred to Capital A/c in an ordinary business. The revenue accounts are thus closed, and the Profit or Loss transferred to the H.O. A/c. Closing of Asset & Liability Accounts: The balances of Assets & Liabilities may or may not be transferred to the H.0. books. If it is decided to transfer them, the under mentioned entries will be passed to close the accounts in the branch books: 1. | For Assets: Head Office A/c To Sundry Assets Alc 2. | For Liabilities: ‘Sundry Liabilities A/c To Head Office Ac Or Dr After such transfer, the H.O. A/c in branch books will have nil balance. Note: 1. At the commencement of the next accounting period it is necessary to restore the balance of Assets & Liabilities in the branch books by passing a reverse entry, 2. If, however, these are not transferred, there will remain a balance in H.O. A/c equal to the net assets (i.e. assets less liabilities). Thus, in this case, the branch may prepare a Balance Sheet IPCC_Advanced Accounting_37e_Branch Accounts. 200No.4 for CAICWA & MECICEC MASTER MINDS ) H.0. Books: Part Ill - Incorporation of Branch Trial Balance Procedure for Incorporation of Branch Transactions In Head Office Books at a Glance Incorporation of Revenue Incorporation of Accounts Assets & Liability Accounts By preparing P&L By preparing May be May not be ‘Alc of the Branch Memorandum Trading incorporated. —_—incorporated. according to Double and P&L Alc for which entry principles. there will be no double entry effect. Explanation: The branch sends its trial balance (together with its trading and P & L Alc and Balance Sheet, if these are prepared by the branch) to the H.O. for incorporation in H.0. books. When the H.O. receives the branch Trial Balance, it proceeds to incorporate the same in its books. The incorporation procedure may be broken up into two parts: (a) Incorporation of revenue accounts of branch and (b) Incorporation of assets and liabilities of branch, Incorporation of Revenue Accounts: This can be — different methods: First method: Under this method, a Trading and Pr by H.O. The entries to be passed are as follows For items which will appear on ide of Trading Alc: “sy Branch Trading Ale & Dr XxX S To Branch Alc For items which will ape: the credit side of Trading Alc: Branch A/c Dr XXX To Branch Trading Ale XXX For Gross profit made by branch: Branch Trading Alc Dr XXX To Branch P&L Alc XXX ‘4. | For items which will appear on the debit side of P&LAlc: Branch P&L Ac Dr XXX To Branch A/c XXX 5. |For items which will appear on the credit side of Trading Alc: Branch A/c Dr XXX To Branch P&L A/c XXX 6. | For Net Profit made by the branch: Branch P & L A/c Or XXX To General P & L Ale XXX Second method: Under this method, Branch Trading and Profit & Loss A/c is prepared in H.O. books which is merely a Memorandum A/c, and therefore, the entries made in this account do not have any double entry effect. The only object of this Memorandum Alc is to ascertain the net profitfloss of the branch. This net profitloss is incorporated (and not the individual balances as in the first method) in the head office books by the following entry: ‘oss Alc of the branch is prepared 4. | Incase of Net Profit: Branch A/c Dr} Xxx To General Profit & Loss A/c XX IPCC_Advanced Accounting_37e_Branch Accounts. 201Ph: 9885125025/26 [Link] 2. | In case of Net Loss: General Profit & Loss A/c To Branch Alc Dr] xxx XXX Incorporation of Assets & Liabilities: The head office may or may not incorporate the Assets & Liabilities of the branch. If incorporated the following entries shall be necessary. 1. | For Branch Assets: Sundry Branch Asset A/c Dr] xxx To Branch A/c XXX 2. | For Branch Liabilities: Branch Alc Dr] xxx To Sundry Branch Liability A/c XXX After such incorporation of Assets & Liabilities, the Branch A/c (in which adjustment entries have already been posted) in H.O. books will be closed Note: 4. At the commencement of the next accounting period, the entries passed for incorporation of Assets & Liabilities will be reversed, and then the Branch A/c will again be restored showing the opening balances of these items 2. Ifthe Branch Assets & Liabilities are not incorporated, the Branch A/c in H.O. books will have closing balance equal to net assets of the branch. 3. While preparing Balance Sheet of the H.0. all the Assets & Liabilities of the H.O. and those of the branch will be taken into consideration Det: lated Method: d Consol Practical Steps under Consolidated Accounts Step 1: Transfer all revenue items, asset Account in the Books of Branch. Step 2: Incorporate all the revenue item@-Seséts and liabilities transferred by the Branch in the books of Head Office. w Step 3: Prepare Consolidated Trad and Profit and Loss Account and Consolidated Balance Sheet in the Books of H.O. JOURNAL ENTRIES Under this method, the journal entries which are passed by the Branch to transfer its trial balance of H.0. and by the head office to incorporate the trial balance of Branch in its books are shown below: Items of Trial Balance In the Books of Branch In the Books of H.0. 1. For items which are shown| Head Office A/c Dr. [Branch Trading A/c Orr. on the debit side of Trading) To Opening Stock To Branch A/c Ac after To Purchase (Adjustments relating to To Goods received from H.O outstanding and prepaid To Direct Expenses expenses) To Sales Retums 2. For items which are shown] Sales Alc Dr. [Branch Ale Dr. on the credit side of Trading| Closing Stock Or. To Branch Trading Alc oo) Purchase Returns Or. (After adjustments relating to outstanding & prepaid expenses) To Head Office A/c IPCC_Advanced Accounting_37e_Branch Accounts. 202No.4 for CAICWA & MECICEC MASTER MINDS ) Branch Trading Alo Dr. To Branch P & L Ae 3. Fortranster of Gross Profit | No Entry 4, For items which are shown|Head Office Alc Dr. [BranchP&LAC Dr. on the debit side of Profit] To Office & Adm. Exp. A/c To Branch Ao and Loss A/c To Selling & Dist, Exp. Ac (After adjustments relating To Depreciation A/c ete. to outstanding & prepaid expenses) 5. For items which are shown|Interest Received Dr. [Branch Alc Dr. on the credit side of Profit| Discount Received ete. Dr. To Branch P & L Ae and Loss A/c To Head Office A/c (After adjustments relating to outstanding and Prepaid expenses) BranchP&LAe Dr 6. Fortransfer of Net Profit | No Entry ToH.O.P&LA‘c/ general P &LAlc Head Office Ale Dr. [Branch Assets Ale Dr Fee eer ai ctmerere”| To Assets (individually) ssets (after adjustments) {Individually To Branch Alc 8. For Transfer of Branch Liabilities SS Dr. Branch Ale Dr. Liabilties To Branch Liabilities Alc (After adjustments) (individually) Notes: 2. Incase of net loss, entry no. 6 will be reversed, 3. As a result of these entries the H.O. Alc in the books of Branch and Branch A/c in the books of H.0. will be completely closed. 4. In the beginning of next accounting year, the entry no.7 and 8 will be reversed Problem 41: Show adjustment Journal entry in the books of Head Office at the end of April, 2013 for incorporation of inter-branch transactions assuming that only Head Office maintains different branch accounts in its books. A. Delhi Branch: 4. Received goods from Mumbai — Rs. 35,000 and Rs. 15,000 from Kolkata. 2. Sent goods to Chennai ~ Rs. 25,000, Kolkata ~ Rs. 20,000. 3. Bill Receivable received ~ Rs. 20,000 from Chennai 4, Acceptances sent to Mumbai — Rs. 25,000, Kolkata — Rs. 10,000. B. Mumbai Branch (apart from the above) : 1. Received goods from Kolkata ~ Rs. 18,000, Delhi ~ Rs. 20,000 2. Cash sent to Delhi Rs. 15,000, Kolkata - Rs. 7,000, ©. Chennai Branch (apart from the above) : 4. Received goods from Kolkata — Rs. 30,000 2. Acceptances and Cash sent to Kolkata - Rs. 20,000 and Rs.10,000 respectively. D. Kolkata Branch (apart from the above) : 1. Sent goods to Chennai - Rs. 35,000 IPCC_Advanced Accounting_37e_Branch Accounts. 203Ph: 9885125025/26 [Link] 2. Paid cash to Chennai — Rs. 15,000. 3. Acceptances sent to Chennai — Rs.15,000. (PM) (Solve problem no. 8 of assignment problems as rework) com Note: Problem 42: Pass necessary Journal entries in the books of an independent Branch of a ‘Company, wherever required, to rectify or adjust the following 4. Income of Rs. 2,800 allocated to the Branch by Head Office but not recorded in the Branch books. 2. Provision for doubtful debts, whose accounts are kept by the Head Office, not provided earlier for Rs. 1,000. 3. Branch paid Rs, 3,000 as salary to a Head Office Manager, but the amount paid has been debited by the Branch to Salaries Account. 4. Branch incurred travelling expenses of Rs. 5,000 on behalf of other Branches, but not recorded in the books of Branch 5. A remittance of Rs.1,50,000 sent by the Branch has not received by Head Office on the date of reconciliation of Accounts. 6. Head Office allocates Rs. 75,000 to the Branch as Head Office expenses, which has not yet been recorded by the Branch 7. Head Office collected Rs. 30,000 directly from a Brapch Customer. The intimation of the fact has been received by the Branch only now. 8. Goods dispatched by the Head office oe s. 10,000, but not received by the S Branch till date of reconciliation. The Goods hi fen received subsequently. Gy (Solve prob) ‘9 of assignment problems as rework) Note: ~ Problem 13: On 31st March, 2013 K&Xpur Branch submits the following Trial Balance to its Head Office at Lucknow: Debit Balances Rs. in lacs Furniture and Equipment 18 Depreciation on furniture 2 Salaries 25 Rent 10 ‘Advertising 6 ‘Telephone, Postage and Stationery aI ‘Sundry Office Expenses 1 ‘Stock on 1st April, 2012 60 (Goods Received from Head Office 288 Debtors 20 Cash at bank and in hand 8 Carriage Inwards 7 448 Credit Balances Outstanding Expenses 3 Goods Returned to Head Office 5 Sales 360 Head Office 80 448 IPCC_Advanced Accounting_37e_Branch Accounts. 204No.4 for CAICWA & MECICEC MASTER MINDS ) Additional Information: Stock on 31st March, 2013 was valued at Rs. 62 lacs. On 28th March, 2013 the Head Office dispatched goods costing Rs. 10 lacs to its branch. Branch did not receive these goods before 1st April, 2013. Hence, the figure of goods received from Head Office does not include these goods. Also the head office has charged the branch Rs. 1 lac for centralized services for which the branch has not passed the entry, You are required to: 1. Pass Journal Entries in the books of the Branch to make the necessary adjustments 2. Prepare Final Accounts of the Branch including Balance Sheet, and 3. Pass Journal Entries in the books of the Head Office to incorporate the whole of the Branch Trial Balance. (PM) (Ans: Net profit Rs. 24lacs; Total of Balance sheet Rs.118lacs) (Solve problem no. 10 of assignment problems as rework) Note: Problem 14: (PRINTED SOLUTION AVAILABLE) Independent branch-closing of branch books in the books of branch: AFFIX Ltd. of Calcutta has a branch at Delhi which the goods are supplied from Calcutta but the cost there of is not recorded in the Head office books. On 31 March, 1997 the branch Balance sheet was as follo. Liabilities Rs. Rs. Creditors Balance 40,000 | De! lance 2,00,000 Head Office 1,68,000 Extension Alc - -d by transfer to H.O. OS Cash at Bank 8,000 208Sb0 2,08,000 During the six months ending on 30-9-1997, the following transactions took place at Delhi Particulars Rs. Particulars Rs. Sales 2,40,000 | Manager's Salary 4,800 Purchases 48,000 | Collections from Debtors 1,60,000 Wages paid 20,000 | Discount allowed 8,000 Salaries (inclusive of 6,400 | Discount earned 4,200 advance of Rs.2,000) General Expenses 1,600 | Cash paid to Creditors 60,000 Fire Insurance (paid for one year) | __3,200 | Building Account (further payment) | _4,000 Remittance to HO. 38,400 | Cash in Hand 1,600 Cash at Bank 28,000 Set out the Head Office Account in Delhi books and the Branch Balance Sheet as on 30-9-1997. Also give journal entries in the Delhi books. (SM) (Ans.: Balance in Head Office Account ~ 278400, Total of Balance Sheet ~ 305200) Note: Problem 15: Closing of branch books in the books of branch, incorporation of branch books in the books of head office: The following Trial balances as at 31* December, 2012 have been extracted from the books of Major Ltd. and its branch at a stage where the only adjustments requiring to be made prior to the preparation of a Balance Sheet for the undertaking as a whole. IPCC_Advanced Accounting_37e_Branch Accounts. 205885125025/26 [Link] , Head Office Branch Particulars Dr. Cr. Dr. cr. Share capital 7,560,000, Fixed assets 75,125 76,001 Current Assets 721,809 23,715 | __(Note 3) Current Liabilities 34,567 9,721 Stock Reserve, 1 Jan., 2012 (Note 2) os Revenue Alc 43210 10,250 Branch Alc 31,536 | Head Office Ale 22,645 2.26470 | _2,28,470| 42,616 42,616 Notes: 1. Goods transferred from Head Office to the Branch are invoiced at cost plus 10% and both Revenue Accounts have been prepared on the basis of the prices charged. 2. Relating to the Head Office goods held by the Branch on 1% January, 2012 3. Includes goods received from Head Office at invoice price Rs.4,565. 4. Goods invoiced by Head Office to Branch at Rs.3,641 were in transit at 31" December, 2012, as was also a remittance of Rs.3,500 from the Branch. 5. At 31% December, 2012, the following transactions were reflected in the Head Office books but unrecorded in the Branch books. a. The purchase price of lorry, Rs.2,500, which ré he Branch on December 25” b. A sum received on 30” December, 2012 fr of the Branch debtors, Rs.750. You are required: QS 4. To record the foregoing in the appropri jer accounts in both sets of books; 2. To prepare a Balance Sheet as at, ember, 2012 for the undertaking as a whole, (SM) (Ans.: Total of Balance Sheet - 2,47,695) Note: Problem 16: M/s Shah commenced business on 1.4.2012 with Head Office at Mumbai and a Branch at Chennai, Purchases were made exclusively by the Head Office, where the goods were processed before sale. There was no loss or wastage in processing Only the processed goods received from Head Office were handled by the Branch. The goods were sent to branch at processed cost plus 10%. Alll sales, whether by Head Office or by the Branch, were at uniform gross profit of 25% on their respective cost. Following is the Trial Balance as on 31.3.2013, : Head Office Branch Particulars Dr. Cr. Dr. Cr. Capital = 3,410,000 Drawings: 55,000 Purchases 19,69,500 Cost of processing 50,500 = Sales 12,80,000 Goods sent to branch 9,24,000 = = IPCC_Advanced Accounting_37e_Branch Accounts. 206No.4 for CAICWA & MECICEC MASTER MINDS ) ‘Administrative expenses 7,39,000 = 75,000 Selling expenses 50,000 = 6,200 Debtors 3,09,600 7,13,600 Branch current Ale 3,89,800 = Creditors = = Bank balance 7,52,000 77,500 Head office current alc = = = Goods received from HO. = — | 880,000 = Following further information is provided 4. Goods sent by Head Office to the Branch in March, 2013 of Rs. 44,000 were not received by the Branch till 2.4.2013. 2. A remittance of Rs. 84,300 sent by the Branch to Head Office was also similarly not received up to 31.3.2013, 3. Stock taking at the Branch disclosed a shortage of Rs. 20,000 (at selling price to the branch). 4. Cost of unprocessed goods at Head Office on 31.3.2013 was Rs. 1,00,000. Prepare Trading and Profit and Loss account in columnar form and Balance Sheet of the business as a whole as at 31.3,2013 (PM) (Ans: H.0. Net profit Rs.1,28,091; Branch Net profit Rs.1,26,800; Total of Balance sheet Rs.11,22,091) Note: & Problem 17: KP manufactures a range of gogé’ its head office. In addition, the H.. transfgt plus 15%. The branch then sells these gg eens general public on only cash basis. The selling price to wholesale custoM@N6 designed to give a factory profit which amounts to 30% of the sales value, The selling price to the general public is designed to give a gross margin (.e., seling price less cost of goods from H.O. of 30% of the sales value. The company operates from rented premises and leases all other types of fixed assets. The rent and hire charges for these are included in the overhead costs shown in the trial balances. From the information given below, you are required to prepare for the year ended 31% Dec., 2012 in columnar form 1. AProfit & Loss account for (i) H.O. (ii) the branch (iii) the entire business. 2. ABalance Sheet as on 31" Dec., 2012 for the entire business. , HO. Branch pou Rs, Rs, Rs. | RS. Raw material purchased 35,000 Direct wages: 708,500 Factory overheads 39,000 Stock on 1=1- 2012 Raw material 7,800 Finished goods 73,000 9,200 Debtors 37,000 Cash 22,000 7,000 ‘Administrative Salaries 73,900 4,000 Salesmen’s Salaries 22,500 6,200 Other administrative & selling overheads 12,500 2,300 Inter -unit accounts 5,000 2,000 Capital 50,000 Sundry creditors 13,000 IPCC_Advanced Accounting_37e_Branch Accounts. 207Ph: 9885125025/26 [Link] Provision for unrealized profit in stock 4,200 Sales 2,00,000 65,200 Goods sent to Branch 46,000 Goods Received from H.0. 44,500 3,10,200 | 3,10,200 | 67,200 | 67,200 Notes: 4. On 28" Dec., 2012 the branch remitted Rs.1,500 to the H.O. and this has not yet been recorded in the H.O. books. Also on the same date, the H.0. dispatched goods to the branch invoiced at Rs.1,500 and these too have not yet been entered into the branch books. It is the company's policy to adjust items in transit in the books of the recipient. 2. The stock of raw materials held at the H.O. on 31 Dec, 2012 was valued at Rs.2,300 3. You are advised that a, There were no stock losses incurred at the H.O. or at the branch b. Itis the company's practice to value finished goods stock at the H.0. at factory cost. ¢, There was no opening or closing stock of work- in-progress. 4. Branch employees are entitled to a bonus of Rs.156 under a bilateral agreement. (SM) (Ans.; Profit for Head Office ~ 17,053, Branch ~ 6,904, Combined - 23,957, Total of Balance Sheet - 87,113) Note: Foreign branches generally maintain indepen by them in currency of the country in whi balances of foreign branches relate m rupees. This is because exchange ra currencies due to international deman\ complete record of business transacted operate. Thus problems of incorporating translation of foreign currency into Indian \dian rupees is not stable in relation to foreign ‘supply effects on various currencies. Accounting for Foreign Branches: For the purpose of accounting, AS 11 (revised 2003) classifies the foreign branches may be classified into two types 1. Integral Foreign Operation; 2. Non- Integral Foreign Operation 4. Integral Foreign Operation (IFO): It is a foreign operation, the activities of which are an integral part of those of the reporting enterprise. The business of IFO is carried on as if it were an extension of the reporting enterprise's operations. Generally, IFO carries on business in a single foreign currency, ie., of the country where it is located. For example, sale of goods imported from the reporting enterprise and remittance of proceeds to the reporting enterprise 2. Non - Integral Foreign Operation (NFO): It is a foreign operation that is not an Integral Foreign Operation. The business of a NFO is carried on in a substantially independent way by accumulating cash and other monetary items, incurring expenses, generating income and arranging borrowing in its local currency. An NFO may also enter into transactions in foreign currencies, including transactions in the reporting currency. An example of NFO may be production in a foreign currency out of the resources available in such country independent of the reporting enterprise Techniques for foreign Currency Translation: 1. Integral Foreign Operation (IFO): Following are the standard recommendations for foreign currency translation IPCC_Advanced Accounting_37e_Branch Accounts. 208No.4 for CAICWA & MECICEC MASTER MINDS ) a. All revenue accounts of IFO be translated at the rate prevailing on the date of transaction. This will require date wise details of the transaction entered by that operation together with the rates. Weekly or monthly average rate is permitted if there are no significant variations in the rate except opening stock (op. rate), closing stock (Cl. Rate), depreciation on fixed assets (rate prevailing on the date of acquisition of fixed assets), goods received from HO(to be substituted with the value of goods sent to branch in the books of HO subject to the condition that there is no Goods in transit), b. Translation at the balance sheet date i, Monetary items at closing rate. ii, Non-monetary items: The cost and depreciation of the tangible fixed assets is translated using the exchange rate at the date of purchase of the asset if asset is, carried at cost. The cost of inventories is translated at the exchange rates that existed when the cost of inventory was incurred and realizable value is translated applying exchange rate when realizable value is determined which is generally closing rate iv. Exchange difference arising on the translation of the financial statement of integral foreign operation should be charged to profit and loss account. 2. Non-Integral Foreign Operation(NFO): Accounts of non-integral foreign operation are translated using the following principles: a, Balance sheet items i.e. Assets and Liabiliti Apply closing exchange rate. Weekly or moj no significant variations in the rate exce However, accounting standard alld@ls c. Resulting exchange difference Qt reserve" until the disposal of "ne monetary and non-monetary erage rate is permitted if there are ing stock(op. rate), closing stock(cl. Rate), goods received from HO. b. Items of income and expenses: agers rates on the date of transactions. ig, Sverage rate subject to materiality id be accumulated in a “foreign currency translation ivestment in non-integral foreign operation’ Monetary items: Monetary items are money held and assets and liabilities to be received or pai receivables and payables. Non-monetary items- Non-monetary items are assets and liabilities other than monetary items. For example: fixed assets, inventories and investment in equity shares. fixed or determinable amount of money. For example — cash, Problem 18: Foreign branche: integral foreign operation: Conversion of branch trial balance in to head office ruling currency: DM Delhi has a branch in London which is an integral foreign operation of DM. At the end of the year 31st March, 2011, the branch furnishes the following trial balance in U.K. Pound £ = Particulars De re, Fixed assets (Acquired on 1st April, 2007) 24,000 Stock as on ist April, 2010 141,200 Goods from head Office 64,000 Expenses 4,800 Debtors 4,800 Creditors 3,200 Cash at bank 7,200 Head Office Account 22,600 Purchases 72,000 Sales 96,000 1,22,000 | 1,22,000 IPCC_Advanced Accounting_37e_Branch Accounts. 209Ph: 9885125025/26 [Link] In head office books, the branch account stood as shown below: London Branch A/c Particulars ‘Amount Particulars ‘Amount To Balance B/d | 20,10,000 | By Bank Ale 52,16,000 To Goods sentto branch | _49,26,000 | By Balance C/d 17,20,000 69,36,000 69,36,000 The following further information is given: 1. Fixed assets are to be depreciated @ 10% p.a 2. On 31st March, 2010 Expenses outstanding -£.400 Prepaid expenses -£200 Closing stock -£8,000 3. Rate of Exchange: 4st April, 2007 -Rs. 70to£ 1 ‘1st April, 2010 -Rs. 76to£1 31st March, 2011 -Rs. 77 to£1 Average -Rs. 75to£ 1 You are required to prepare: 1. Trial balance, incorporating adjustments of outstanding and prepaid expenses, converting U.K. pound into Indian rupees 2. Trading and profit and loss account for the year e st March, 2011 and the Balance Sheet as on that date of London branch as wou) far in the books of Delhi head office of DM. < (PM) ince Total Rs.92,09,600; Net profit Rs.6,08,200; Total of Balance sheet Rs.26,0,400) (Solve pr (0. 11 of assignment problems as rework) (ans: T Note: Problem 19: Foreign branches: Non-Integral foreign operation: Omega has a branch at Washington. its Trial Balance as at 30th September, 2012 is as follows: Particulars ee fer Plant and machinery 1,20,000 Furniture & fixtures 8,000 Stock, Oct. 1, 2011 56,000 Purchases 2,40,000 Sales = Goods from Indian Co. (H.O.) 80,000 Wages 2,000 Carriage inward 1,000 Salaries 6,000 Rent, rates and taxes 2,000 insurance 7,000 Trade expenses 1,000 Head Office Ale = Trade debtors 24,000 Trade creditors = IPCC_Advanced Accounting_37e_Branch Accounts. 210No.4 for CAICWA & MECICEC MASTER MINDS ) Cash at bank 5,000 - Cash in hand 1,000 5,47,000 5,47,000 The following further information is given: NORR EN se Wages outstanding - $ 1,000 Depreciate Plant and Machinery and Furniture and Fixtures @ 10% p.a. The Head Office sent goods to Branch for Rs.39, 40,000. The Head Office shows an amount of Rs.43,00,000 due from Branch. Stock on 30th September, 2012 ~ $ 52,000. There were no in transit items either at the start or at the end of the year. On September 1, 2006, when the fixed assets were purchased, the rate of exchange was Rs. 36 to one $. On October 1, 2011, the rate was Rs.39 to one $. On September 30, 2012, the rate was Rs.41 to one $. Average rate during the year was Rs.40 to one $. You are asked to prepare: 1. Trial balance incorporating adjustments given u fo 4 above, converting dollars into rupees. SS ended 30th September, 2012 and 2. Trading and Profit and Loss Account for Balance Sheet as on that date depicting ¢s-proftability and net position of the Branch as would appear in India for the purpos ah ftorporating in the main Balance Sheet. & (Nov-1999, 2009, May-2012, PM) QW ier Prone 19,83,200, Teta OF Balnice Sheet 8088 20) (Hint: SSS8sumed that Washington branch is a NFO branch) (Solve problem no. 12 of assignment problems as rework) Note: Problem 20: (PRINTED SOLUTION AVAILABLE) Foreign branches: Integral foreign ‘operation: Conversion of branch trial balance in to head office ruling currency: On 31st December, 2012 the following balances appeared in the books of Chennai Branch of an English firm having its HO office in New York: Particulars ‘Amount ‘Amount Stock on 1st Jan., 2012 2,34,000 Purchases and Sales 15,62,500 23,43,750 Debtors and Creditors 7,65,000 5,410,000 Bills Receivable and Payable 2,04,000 1,78,500 Salaries and Wages 4,00,000 5 Rent, Rates and Taxes 4,06,250 = Furniture 91,000 = Bank Ae 5,68,650 New York Account = 5,099,150 36,31,400 36,31,400 Stock on 31st December, 2012 was Rs. 6,37,500, Branch account in New York books showed a debit balance of $ 13,400 on 31st December, 2012 and Furniture appeared in the Head Office books at $ 1,750. IPCC_Advanced Accounting_37e_Branch Accounts. auPI 885125025/26 [Link] The rate of exchange for 1 $ on 31st December, 2011 was Rs, 52 and on 31st December, 2012 was Rs. 51. The average rate for the year was Rs. 50. Prepare in the Head Office books the Profit and Loss a/c and the Balance Sheet of the Branch. (SM) (Hint: Integral foreign operation Branch) (Ans: Net Profit $17,500; Total of Balance sheet $44,400) (Solve problem no. 13 of assignment problems as rework) Note: Problem 21: Foreign branch: Integral foreign operation: Conversion of branch trial balance in to head office ruling currency: ABCD Ltd, Delhi has a branch in New York, USA, Which is an integral foreign operation of the company. At the end of 31st March, 2013, the following ledger balances have been extracted from the books of the Delhi office and the New York Branch: Dethi New York Particulars (Rs. thousands) {$ thousands) Debit | Credit | Debit Credit Share Capital 1,250 Reserves and Surplus 940 Land 475 Building (cost) 7,000 Buildings Depreciation Reserve 200 Plant & Machinery (cost) 2,000 100 Plant & Machinery Depreciation Reserve F500 20 Trade receivables/payables 270 60 20 Stock (01-04-2012) 25 Branch Stock Reserve 65 Cash & Bank Balances 125 4 Purchases/Sales S 275 600 25 125) ‘Goods sent to Branch 1,500 30 Managing Director's salary 50 Wages & Salaries 100 18 Rent 6 Office Expenses 25 12 Commission receipts 275 100) Branch/H.O. Current Alc 800 5 5,600 | 5,600 280 280 The following information is also available 1. Stock as at 31-03-2013 Dethi - Rs. 2,00,000 New York - $ 10 (all stock received from Delhi) (0.010 Thousands) 2. Head Office always sent goods to the Branch at cost plus 25%. Provision is to be made for doubtful debts at 5%. 4. Depreciation is to be provided on Buildings at 10% and on Plant and Machinery at 20% on written down values. You are required: 4. To convert the branch Trial Balance into rupees, using the following rates of exchange Exchange: Opening rate 1 $= Rs. 50 s IPCC_Advanced Accounting_37e_Branch Accounts. 212No.4 for CAICWA & MECICEC MASTER MINDS } Closing rate 1$=Rs. 55 Average rate 1$ = Rs. 52 For fixed assets 1$=Rs. 45 2. To prepare the Trading and Profit & Loss Account for the year ended 31st March, 2013, showing to the extent possible, Head Office results and Branch results separately. (PM) (Ans: Exchange loss Rs.558.00; Net profit Rs.6,870.44) (Solve problem no. 14 of assignment problems as rework) ASSIGNMENT PROBLEMS Problem 4: Calculation of branch manager’s commission: Premier Company has two branch shops at Shyam bazar and at Tollygunge each with a separate manager. The ratio of gross profit to selling price is constant at each shop at 25% throughout the year to 31st March, 2002. Each branch manager is entitled to a commission of 10% of the net profit earned by his branch, calculated before charging his commission, but subject to a deduction from such commission equal to 25% of any ascertained deficiency of the branch stock. All goods were supplied by the head office to branches. From below information, calculate the commission Note: due to each manager for 2001-2002 & Particulars SV) Shyam Tollygunge Stock at 1.4.01 at cost 18,684 12,484 ‘Goods to branches at cost QS 72,420, 43,480 Sales 90,320, 58,560 Drawing of commission on account by ReiRDErS 600 400 Chargeable expenses 12,280 9,020 ‘Stock at 31.3.02 at selling price 30,832 75,952 (Ans.: Commission to Manager of Shyam Bazar - 946, Tolly Gunge - 534) Problem 2: Neo with headquarters at Mumbai, maintains a branch at Goa. Goods are invoiced at cost plus 25%. In respect of Goa branch, the following information pertaining to the year ended 31st March, 2013 are made available to you: Particulars Rs. Goods sent to Branch (at Invoice price) 6,75,000 Goods returned by branch during the year (at Invoice price) 24,000 Cash sales effected by branch 1,85,000 Discount allowed to customers 2,500 ‘Amount received from branch debtors 3,25,000 Cheques’ of customers which got dishonoured 8,000 Branch expenses met in cash 72,500 Sales return at Goa branch 10,000 Bad debts 5,500 ‘On 31st March, 2013 | On 31st March, 2012 Branch debtors 1,05,000 50,000 Stock at branch (at Invoice price) 2,36,000 7,50,000 Adopting the Stock and debtors system, you are required to prepare the following Ledger ‘accounts, as appearing in the books of the Head Office: 1. Goa branch debtors account; IPCC_Advanced Accounting_37e_Branch Accounts. 213Ph: 9885125025/26 [Link] 2. Goa branch adjustment account; 3. Goa branch profit and loss account (PM)(Ans: Net Profit Rs.32,500) Problem 3: Accounting treatment for Goods sent to branch at invoice price: During the year ended 31st December, 2001 X & Co. of Chennai sent to their branch at Mumbai goods costing Rs.1,00,000. They used to invoice to the branch at a price designed to show a gross profit of 33.33% on invoice price. Collections at the branch from debtors amounting to Rs,26,390 were all sent to head office. Branch transactions during the year were: Particulars Rs. Cash sales 121,050 Credit sales 27,600 ‘Goods returned by customers 300 ‘Goods returned to HO. (Invoice price) 780 Particulars 34.12.00 _ | 31.12.01 ‘Stock (at invoice price) 2,250 2,700 Sundry debtors 4,320 2,230 Goods at the branch of Rs.1,260 (invoice price) were lost. Insurance company paid Rs.730 on the claim. Branch expenses, paid by head office, amount to Rs.36,780. Show the necessary Ledger Accounts as would appear in the head office books recording the above transactions relating to the branch including branch Profit & Loss A/c (May 2006-Similar Model) (Ans.: Branch Cash ~ 121060, Profit in Branch P&L Account - 13120) Problem 4: Sell Well who carried on a retail business-@gned a branch X on January 1st, 2010 where all sales were on credit basis. All goo fred by the branch were supplied from the Head Office and were invoiced to the bra 1% above cost. The following were the transactions e Pee ES Jan. 2010 | Feb. 2010] March S Rs. Rs. Rs. Goods sent to Branch (Purchase Price 40,000 | 50,000 60,000 Sales as shown by the branch monthly report 38,000 42,000| 65,000 Cash received from Debtors and remitted to H.O. 20,000 _51,000| 35,000 Returns to H.O. (Invoice price to Branch) 1,200 600 2,400 The stock of goods held by the branch on March 31, 2010 amounted to Rs.53,400 at invoice to branch. Record these transactions in the Head Office books, showing balances as on 31st March, 2010 and the branch gross profit for the three months ended on that date. (sm) All workings should form part of your solution (Ans: Net profit Rs. 37363) Problem 5: XYZ is having its Branch at Kolkata. Goods are invoiced to the branch at 20% profit on sale, Branch has been instructed to send all cash daily to head office. All expenses are paid by head office except petty expenses which are met by the Branch Manager. From the following particulars prepare branch account in the books of Head Office, Particulars Rs. Particulars Rs. Stock on 1st April 2011 30,000 | Discount allowed to debtors 160 (invoice price) ‘Sundry Debtors on 1st April 2011 | 18,000 | Expenses paid by head office: Cash in hand as on 1st April, 2017 800 | Rent 7,800 Office furniture on st Apri, 2011 3,000 | Salar 3,200 IPCC_Advanced Accounting_37e_Branch Accounts. 214No.4 for CAICWA & MECICEC MASTER MINDS ) ‘Goods invoiced from the head Stationery & Printing 800 office (invoice price) 1,60,000 Goods return to Head Office 2,000 | Petty expenses paid by the branch 600 Goods return by debtors 960 | Depreciation to be provided on branch furniture at 10% p.a Cash received from debtors 60,000 | Stock on 31st March, 2012 28,000 (at invoice price) Cash Sales 7,00,000 Credit sales 60,000 (PM) (Ans: Profit Rs.24,180) Problem 6: Preparation of Company trading and profit and loss afc.: Following is the information of the Jammu branch of Best New Delhi for the year ending 31st March, 2012 from the following: 1. Goods are invoiced to the branch at cost plus 20% 2. The sale price is cost plus 50%. 3. Other information's: Stock as on 01.04.2011 (invoice price) 2,20,000 Goods sent during the year (invoice price) 11,00,000 Sales during the year Expenses incurred at the branch Ascertain a) The profit earned by the branch duri b) Branch stock reserve in respect of ed profit, (SM) (N - 10) (Ans.: Net profit 1,95,000, Stock reserve Rs. 60,000) Problem 7: When cash sales at invoice price & calculation of provision for discount on debtors on prompt payment: Bengal Trading Co., with its head office in Kolkata, invoiced goods to its branch at Mumbai, at 20% less than the catalogue price which is cost plus 50%, with instructions that cash sales were to be made at invoice price and credit sales at catalogue price less discount at 15% on prompt payment. From the following particulars available from the branch, prepare the necessary Accounts and Branch Trading and Profit & Loss A/c for the year ended 31st March, 2002 in the head office books so as to show the actual profit or loss of the branch for the year: Particulars Rs Stock on ist April 2007 (invoice price) 12,000 Debtors on 1st April, 2007 10,000 ‘Goods received from head office (invoice price) 132,000 ‘Sales (cash) 46,000 Sales (credit) 1,00,000 ‘Cash realised from debtors 85,635 Discount allowed to debtors 13,365 Expenses at the branch 6,000 Remittance to head office 7,20,000 Debtors on 31st March, 2002 11,000 ‘Cash in hand on 31st March, 2002 5,635 ‘Stock on 31st March, 2002 (invoice price) 15,000 Provision should be made for discount to be allowed to debtors as on 31st March, 2002, on the basis of the year’s trend of prompt payment, (Ans.; Branch net profit~ 17650, provision for discount on debtors Rs. 1485) IPCC_Advanced Accounting_37e_Branch Accounts. 215PI 885125025/26 [Link] Problem 8: Head Office passes adjustment entry at the end of each month to adjust the position arising out of inter-branch transactions during the month. From the following Inter- branch transaction in January 2011, make the entry in the books of H.O. A. Bombay Branch: 4. Received Goods Rs.6,000 from Calcutta Branch, Rs.4,000 from Patna Branch. 2. Sent Goods of Rs. 10,000 to Patna, Rs.8,000 to Calcutta 3. Received BIR Rs.6,000 from Patna 4, Sent Acceptance Rs.4,000 to Calcutta, Rs.2,000 to Patna B. Madras Branch (apart from the above): 1. Received Goods Rs.10,000 from Caloutta, Rs.4,000 from Bombay. 2. Cash Sent Rs.2,000 to Calcutta Rs.6,000 to Bombay. C. Calcutta Branch (Apart from the above): 1. Sent Goods to Patna Rs.6,000. 2. Accepted B/P Rs.4,000 to Patna, Rs.4,000 cash to Patna (PM) (May 2003) Problem 9: Give Journal Entries in the books of Head Office to rectify or adjust the following: 1. Goods sent to Branch Rs. 12,000 stolen during transit. Branch manager refused to accept any liability. 2. Branch paid Rs. 15,000 as salary to the officer of Head Office on his visit to the branch. 3. On 28th March, 2012, the H.O. dispatched goods, Branch invoiced at Rs. 25,000 which was not received by Branch till 31st March, 4, Aremittance of Rs, 10,000 sent by the branc! h March, 2012, received by the Head Office on 1st April, 2012. SS 5. Head Office made payment of Rs. 25, purchase of goods by Branch and wrongly debited its own purchase account, (pM) Problem 10: Messrs Ramchand & irs have a branch in Delhi, The Delhi Branch deals not only in the goods from Head Office but also buys some auxiliary goods and deals in them. They, however, do not prepare any Profit & Loss Account but close all accounts to the Head Office at the end of the year and open them afresh on the basis of advice from their Head Office. The fixed assets accounts are also maintained at the Head Office. The goods from the Head Office are invoiced at selling prices to give a profit of 20 per cent on the sale price, The goods sent from the branch to Head Office are at cost. From the following prepare Branch Trading and Profit & Loss Account and Branch Assets Account in the Head Office Books. Trial Balance of the Delhi Branch as on 31-12-2012 Debi ‘Amount Credit ‘Amount Head office opening balance on 1-1-12 | 15,000 | Sales 7,00,000 Goods from H.0. 50,000 | Goods to H.O. 3,000 Purchases 20,000 | Head Office Current A/c 15,000 (Opening Stock 4,000 | Sundry Creditors 3,000 (H.O. goods at invoice prices) (Opening Stock of other goods [500 Salaries 7,000 Rent 3,000 Office expenditure 2,000 Cash on Hand 500 IPCC_Advanced Accounting_37e_Branch Accounts. 216No.4 for CAICWA & MECICEC MASTER MINDS ) Cash at Bank 4,000 Sundry Debtors 45,000 4,21,000 1,21,000 The Branch balances as on 1st January, 2012, were as under: Furniture Rs.5,000; Sundry Debtors Rs.9,500; Cash Rs.1,000, Creditors Rs.30,000; Stock (H.O. goods at invoice price) Rs.4,000; other goods Rs.500. The closing stock at branch of the head office goods at invoice price is Rs.3,000 and that of purchased goods at cost is Rs.1,000. Depreciation is to be provided at 10 per cent on branch assets. (SM) (Ans.: Net Profit Rs.30,200) Problem 11: Foreign branches: integral foreign operation: Conversion of branch trial balance in to head office ruling currency: The Washington branch XYZ, Mumbai sent the following trial balance as on 31% December, 2012: Particulars $ $ Head Office Alc : 22,800 Sales : 84,000 Debtors and Creditors 4,800 3,400 Machinen) 24,000 Cash at Bank 1,200 Stock, 1 January, 2012 71,200 Goods from H.O. 64,000 Expenses ic 5,000. SF 1,10,200 1,10,200 In the books of head office, the Branch a/c stood Dr. Washingto h Account cr. Particulars Rs. Particulars Rs. To Balance b/d 8.10880 | By Cash 28,76,000 To Goods sent to branch 2RGRGI0 | By Balance c/d 8,60,000 37,38,000 37,36,000 Goods are sent to the branch at cost plus 10% and the branch sells goods at invoice price plus 25%. Machinery was acquired on 1° January, 2007, when $ 1.00 = Rs.40 Rates of Exchange were: 1® January, 2012 $1.00 = Rs.46 31* December, 2012 $1,00=Rs.48 Average $1.00=Rs.47 Machinery is depreciated @ 10% and the Branch Manager is entitled to a commission of 5% ‘on the profit of the branch, You are required to: 1. Prepare the Branch Trading & Profit and Loss A/c in dollars 2. Convert the Trial Balance of Branch into Indian currency and prepare Branch Trading & Profit and Loss A/c and the Branch A/c in the books of head office. (May 2008, PM) (Ans.: Branch Profit $ -8,930, Branch Trading & Profit & Loss ~ 4,90,240, Total of Trail Balance ~ Rs. 49,71,200) Problem 42: Foreign branches: Non- Integral foreign operation: Moon Star has a branch at Virginia (USA). The Branch is a non-integral foreign operation of the Moon Star. The trial balance of the Branch as at 31st March, 2012 is as follows: Particulars Dr. US $ Cr. US$ Office equipments 48,000 Furniture and Fixtures 3,200 Stock (April 1, 2011) 22,400 = IPCC_Advanced Accounting_37e_Branch Accounts.Ph: 9885125025/26 [Link] Purchases 96,000 = Sales = 1,66,400 Goods sent from H.O 32,000 Salaries 3,200 Carriage inward 400 Rent, Rates & Taxes 800 Insurance 400 Trade Expenses 400 Head Office Account = 45,600 Sundry Debtors 9,600 = Sundry Creditors = 6,800 Cash at Bank 2,000 Cash in Hand 400 2,18,800 2,18,800 The following further information’s are given’ 1. Salaries outstanding $ 400, 2. Depreciate office equipment and furniture & fixtures @10% p.a. at written down value, 3. The Head Office sent goods to Branch for Rs.15,80,000 4, The Head Office shows an amount of Rs. 20,50,000 due from Branch. 5. Stock on 31st March, 2012 -$21,500. 6. There were no transit items either at the start or af of the year. 7. On April 1, 2010 when the fixed assets were fed the rate of exchange was Rs. 43 to one $. On April 1, 2011, the rate was 47 per S. Average rate during the year was Prepare: 1. Trial balance incorporating adjusti ‘ven converting dollars into rupees. 2. Trading, Profit and Loss Account foRthe year ended 31st March, 2012 and Balance Sheet as on date depicting the profitability and net position of the Branch as would appear in the books of Moon Star for the purpose of incorporating in the main Balance Sheet. (PM) (Ans: Exchange gain Rs.4,66,800; Net profit Rs.11,02,200; Total of Balance sheet Rs.39,79,000) in March 31, 2012 the rate was Rs. 50 one $. Problem 13: Foreign branches: Integral foreign operation: Conversion of branch trial balance in to head office ruling currency: M/s Carlin has head office at New York (U.S.A.) and branch at Mumbai (India). Mumbai branch is an integral foreign operation of Carlin & Co. Mumbai branch furnishes you with its trial balance as on 31% March, 2013 and the additional information given thereafter. (Rs. in thousands) Particulars Dr. Cr. Stock on 1 April, 2012 300 = Purchases and sales 800 | 7200 ‘Sundry Debtors and creditors 400 | 300 Bills of exchange 120 | 240 ‘Wages and salaries 560 = Rent, rates and taxes 360 = ‘Sundry charges 160) = ‘Computers 240 = Bank balance 420 = New York office ale =| 1620 3360 | 3360 IPCC_Advanced Accounting_37e_Branch Accounts. 218No.4 for CAICWA & MECICEC MASTER MINDS ) Ad 1. Computers were acquired from a remittance of US $ 6,000 received from New York head office and paid to the suppliers. Depreciate computers at 60% for the year. 2. Unsold stock of Mumbai branch was worth Rs.4,20,000 on 31° March, 2013 ional information: 3. The rates of exchange may be taken as follows: a, On 1.4.12 @ Rs.40 per US$, b. 0n31.3.13 @ Rs42 per US$. ¢. Average exchange rate for the year @ Rs.41 per USS. d. Conversion in § shall be made upto two decimal accuracy. You are asked to prepare in US dollars the revenue statement for the year ended 31% March, 2013 and the balance sheet as on that date of Mumbai branch as would appear in the books ‘of New York head office of Carlin. You are informed that Mumbai branch account showed a debit balance of US $ 39609. 18 on 31.3.2013 in New York books and there were no items pending reconciliation (sm) (Ans.; Total of Trail Balance in $ - 81,734.62, Total of Balance Sheet in $ - 34,780.95) Problem 14: Foreign branch: Integral foreign operation: Conversion of branch balance in to head office ruling currency: S & M Bombay, have a branch in Sydney, Australia. Sydney branch is an integral foreign operation, M At the end of 31% March, 2011, the following led ces have been extracted from the books of the Bombay Office and the Sydney Offic Particulars usands) | (Austr dollars thousands) bebit Credit Debit Credit ‘Share capital 7 2,000 7 : Reserves & Surplus - 1,000 : 5 Land 500 : = 5 Buildings (cost) 7,000 : = 5 Buildings Dep. Reserve E 200 E : Plant & Machinery (Cost) 2,500 7 200 : Plant & Machinery Dep. Reserve 7 600 7 130 Debtors/Creditors 280 200 60 30 Stock (1.4.2010) 100) - 20 5 Branch Stock Reserve - a - = Cash & Bank Balances 70 - 70 : Purchases/Sales 240 520 20 123 Goods sent to Branch 7 100 5 : Managing Director's salar 30 : 7 : ‘Wages & Salaries 75 : a5 5 Rent - = 12 : Office Expenses 25 : 18 - ‘Commission Receipts 7 256 7 700 Branch/H.0, Current Ale 120 E 7 7 4,880 4,880 390 390 The following information is also available: 1, Stock as at 31.3.2011 Bombay Rs.1,50,000; Sydney A$ 3,125 2. Head office always sent goods to the branch at cost plus 25% 3. Provision is to be made for doubtful debts 5% IPCC_Advanced Accounting_37e_Branch Accounts. 219Ph: 9885125025/26 [Link] com 4. Depreciation is to be provided on building at 10% and on plant and machinery at 20% on written- down values. 5. The managing director is entitled to 2% commission on net profits 6. Income tax is to be provided at 47.5% You are required to convert the Sydney Branch Trial Balance into rupees; (Use the following rates of exchange Opening rate AS$=Rs.20; Closing rate AS=Rs.24 Average rate AS=Rs.22. For Fixed Assets AS=Rs.18) To prepare the trading and P & L A/c for the year ended 31% March, 2011 , showing to the extent possible , head office results and branch results separately. (PM) (May- 2013 Similar Problem) (Ans: Difference in exchange Re.2,16,000; Net profit Rs.9,88,000) ‘ABC ANALYSIS: ACategory B Category C Category Class Room Problems | 1,2, 4-10, 12-15, 3,11,18 16,17 19-21 Assignment Problems | 1, 2, 7,9, 12,13 3,5,6,8, 14 4, 10,11 & Verified by: [Link], Copyrights Reserved S ner eat To MASTER MINDS, Guntur KS ~ Executed by: Rajasekhar Sir IPCC_Advanced Accounting_37e_Branch Accounts. 220