2 branch accounting

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BRANCH ACCOUNTINGBranch accounting is an accounting system in which each department or Branch of a

business is established as a separate cost centre or budget centre. The net profit per Branch

may be added together to arrive at the profit for the whole business. Branch accounts may

be prepared to show the performance of both a main trading centre (i.e. the Head Office)and subsidiary trading centre (i.e. Branches) but with all the accounting records being

maintained by Head Office. Alternatively, separate entity Branch accounts are prepared inwhich Branches maintain their own records, which are later combined with Head Office

records to prepare accounts for the whole business.

ACCOUNTING SYSTEM FOR A BRANCHThere are two alternative systems:

1. The branch does not maintain a complete set of accounting records. The headoffice serves only as an accounting and control center for the branches.

2. The branch maintains a complete set of accounting records consisting of journalentries and ledger accounts. Financials statements are prepared by the branchaccount and forwarded to the head office.

This chapter focuses on the second system that the branch maintains its own accounting

records.

RECIPROCAL LEDGER ACCOUNTS USED BY THE HEAD OFFICE AND BRANCH Head Office Ledger Account:

This account is used by the branch to account for all transactions with the home office. It is

credited for all cash, merchandise or other assets provided by the head office to the branch.It is debited for all cash, merchandise, or other assets sent by the branch to the head office

or to other branches. This account represents the net investment by the head office in the

branch. At the end of a period, the balance of Income Summary account of a branch is closed

to the head office account.

Branch Ledger Account:This account is a reciprocal ledger account (to head office account) used by the head office

to account for any transactions with the branches. It is debited for cash, merchandise and

services provided to the branch by the head office and for the net income reported by the

branch. It is credited for cash, or other assets received from the branch, and for net lossesreported by the branch.

METHODS OF BILLING MERCHANDISE SHIPMENT TO BRANCHThree alternative methods are available to head office in billing the merchandise shipped to

the branches:

1. Billed at head office cost.2. Billed at a percentage above the head office cost.3. Billed at the branchs retail selling price.

ALLOWANCE FOR OVER VALUATIONHead Office sells merchandise to Branch more than selling price. This additional profit

which is earned by the Head Office from the shipment of merchandise to the Branch is

known as allowance for over valuation.


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COMPUTATION OF ALLOWANCE FOR OVERVALUATION PERCENTAGE:Allowance for overvaluation percentage = Allowance for overvaluation X 100

Cost price

COMPUTATION OF ALLOWANCE FOR OVERVALUATION:Allowance for overvaluation =

Billed price x Allowance forovervaluation percentage (%)

Billed percentage (%)

Billed price means cost price plus allowance for over valuation. Billed percentage (%) means cost percentage (100%) plus allowance for over

valuation percentage (%).

COMPUTATION OF REALIZED ALLOWANCE FOR OVERVALUATION:Particulars Billed Cost Allowance for over

valuationMerchandise inventory opening (Branch) XXX XXX XXX

Add: Merchandise sent to Branch XXX XXX XXX

Less: Merchandise returned by Branch (XXX) (XXX) (XXX)

Unadjusted allowance for overvaluation XXX XXX XXX

Less: Merchandise inventory ending (Branch) (XXX) (XXX) (XXX)

Adjusted allowance for overvaluation XXX XXX XXX

GENERAL ENTRIES:Head Office Book Branch Book

1. Purchase merchandise on account by Head Office.Purchases Debit

No entryAccounts payable Credit

2. Head Office remitted (transferred) cash to Branch.Branch Debit Cash Debit

Cash Credit Head Office Credit

3. Head Office sent goods to Branch at above cost.Branch Debit Merchandise supplied Debit

Merchandise supplied Credit Head Office Credit

Allowance for over valuation Credit

4. Head Office transferred cash to Branch for the salaries expense of Branch.Branch Debit Salaries expense Debit


5. Head Office paid the liability of Branch.Branch Debit Accounts payable Debit


6. Head Office received the cash from the customers of Branch.Cash Debit Head Office DebitBranch Credit Accounts receivable Credit


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7. Branch purchase merchandise on account.No entry

Purchases Debit

Accounts payable Credit

8. Merchandise sold for cash by Branch.No entry

Cash Debit

Sales Credit

9. Branch sold merchandise on account.No entry

Accounts receivable Debit

Sales Credit

10.Branch purchase furniture for cash.No entry

Furniture Debit

Cash Credit

11.Branch paid the liability of Head Office.Accounts payable Debit Head Office Debit

Branch Credit Cash Credit

12.Branch received the receivable of Head Office.Branch Debit Cash Debit

Accounts receivable Credit Head Office Credit

13.Branch returned goods to Head Office at billed price.Merchandise supplied returned Debit Head Office Debit

Allowance for over valuation Debit Merchandise supplied returned Credit

Branch Credit

14.Branch paid the rent expense of Head Office.Rent expense Debit Head Office Debit

Branch Credit Cash Credit

15.Branch reported a net profit to Head Office.Branch Debit Expense and revenue summary Debit

Profit and loss account Credit Head Office Credit

16.Branch reported a net loss to Head Office.Profit and loss account Debit Head Office Debit

Branch Credit Expense and revenue summary Credit

17.Head Office adjusts the allowance for over valuation.Allowance for over valuation Debit

No entryProfit and loss account Credit


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Shah Shoes Company

Head Office Book

General Journal

Date Particulars P/R Debit Credit

8 Hyderabad branch 62,200Cash 62,200

(To record the branchs salaries paid)

9 Accounts payable 19,000

Hyderabad branch 19,000

(To record the liability paid by branch)

10 Hyderabad branch 182,100

Accounts receivable 182,100

(To record the cash received by branch from the

customers of head office)

11 Cash 152,000

Hyderabad branch 152,000(To record the cash remitted by branch)

12 Merchandise supplied returned 5,000

Allowance for overvaluation 1,000


(To record the goods returned by branch)

13 Rent expense 13,000


(To record the rent expense paid by branch)

14 Hyderabad branch 10,000

Furniture 10,000

(To record the furniture sent to branch)15 Hyderabad branch 3,000

Profit & loss account 3,000

(To record the net profit reported by branch)

16 Allowance for overvaluation 39,000

Profit & loss account 39,000

(To adjust the allowance for overvaluation

account)

Computation of Realized Allowance for Overvaluation:

Particulars Billed CostAllowance for over

valuationMerchandise supplied to branch 295,200 246,000 49,200

Less: Merchandise returned by Branch (6,000) (5,000) (1,000)

Unadjusted allowance for overvaluation 289,200 241,000 48,200

Less: Merchandise inventory ending (Branch) (55,200) (46,000) (9,200)

Adjusted allowance for overvaluation 234,000 195,000 39,000

Computation of Allowance for Overvaluation Rate:

Allowance for overvaluation percentage = Allowance for overvaluation X 100

Cost price

Allowance for overvaluation percentage = 49,200 X 100

246,000Allowance for overvaluation percentage = 20%


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Computation of Allowance for Overvaluation:

Allowance for overvaluation =Billed price x Allowance for

overvaluation percentage (%)

Billed percentage (%)Allowance for overvaluation = 5,000 x 20%

120%

Allowance for overvaluation = Rs.1,000

Allowance for overvaluation = 55,200 x 20%

120%


Shah Shoes Company

Hyderabad Branch Book

General JournalDate Particulars P/R Debit Credit

1 No entry

2 Cash 30,000Head office 30,000

(To record the cash received from head office)

3 Merchandise supplied 295,200

Head office 295,200

(To record the goods received from head office)

4 Accounts payable 30,000

Head office 30,000(To record the liability paid by head office)

5 Head office 50,000Accounts receivable 50,000

(To record the cash collected from the customers

by head office)

6 Purchases 50,800

Cash 15,800

Accounts payable 35,000

(To record the goods purchased on account and

for cash)

7 Cash 64,000Accounts receivable 215,000

Sales 279,000

(To record the goods sold for cash and on credit)

8 Salaries expenses 62,200

Head office 62,200

(To record the salaries paid by head office)

9 Head office 19,000

Cash 19,000

(To record the payment of liability of head office)


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Shah Shoes Company

Hyderabad Branch Book

General Journal


10 Cash 182,100Head office 182,100

(To record the cash collected from the customers

of head office)


Cash 152,000

(To record the cash remitted to head office)


Merchandise supplied return 6,000

(To record the goods returned to head office)


Cash 13,000(To record the rent paid for head office)

14 Furniture 10,000

Head office 10,000

(To record the furniture received from head

office)

15 Expense and revenue summary 3,000

Head office 3,000

(To record the net profit reported to head office)

TRANSACTIONS BETWEEN BRANCHES

When it is necessary to transfer merchandise or assets from one branch to another branch,Head Office Ledger account is used by the branches. The head office will transfer the

inventory (or assets) from investment in one branch to another branch. Any excess freight

costs incurred for the transfer between branches should be expensed.

ILLUSTRATION # 2: (INTER BRANCH TRANSACTIONS)The Karachi Head Office of Umair Company consigned to Branch A goods costing

Rs.45,000 and freight paid Rs.3,750. Later on the Head Office directed the Branch A to

transfer the entire consignment to Branch B. The Branch A dully executed the directives

and paid additional freight Rs.750. If the goods had been sent to Branch B directly by the

Head Office, the freight charges would have been Rs.4,200.

REQUIREDGive entries in General Journal of:

1. Head Office 2. Branch A 3. Branch B


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SOLUTION # 2:Umair Company

Head Office Book

General Journal

Date Particulars P/R Debit Credit1 Branch A 48,750

Cash 3,750

Merchandise supplied 45,000(To record the goods supplied to branch A)

2 Branch B 49,200

Inter branch freight charges 300Branch A 49,500

(To record the inter branch freight charges)

Umair Company

Branch A BookGeneral Journal



Freight charges 3,750

Head office 48,750

(To record the goods received from head office)


Freight charges 3,750Cash 750

Merchandise supplied 45,000

(To record the goods supplied to Branch Bunder the instruction of head office)

Umair CompanyBranch B Book

General Journal



Freight charges 4,200

Head office 49,200(To record the goods received from Branch A

under the instruction of head office)

FINANCIAL STATEMENTSSeparate financial statements for branches should be prepared so that management can

evaluate the performance of each branch. The branchs financial statements may be revised

by the head office to include the allocated expenses incurred by the head office. Also, the

financial statements of branches should be revised to eliminate any intra-company profits

on merchandise shipments or interest charge on capital investments.

For investors, the head office and branches are a single business entity. Thus, combinedfinancial statements should be prepared for external users.


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INCOME STATEMENT IN BRANCH BOOKSales revenue XXX

Less: Sales return / sales discount (XXX)

Net sales XXX

Less: Cost of Goods Sold:Merchandise inventory opening XXX

Add: Net purchases XXX

Add: Merchandise received from Head Office XXX

Total merchandise during the period XXX

Less: Merchandise returned to Head Office (XXX)

Merchandise available for sale XXX

Less: Merchandise inventory ending (XXX)

Cost of goods sold (XXX)

Gross profit/loss XXX/(XXX)

Less: Operating expenses (XXX)

Net profit/loss XXX/(XXX)

INCOME STATEMENT IN HEAD OFFICE BOOKSales revenue XXXLess: Sales return / sales discount (XXX)

Net sales XXX



Less: Merchandise send to Branch (XXX)

Total merchandise during the period XXX

Add: Merchandise returned by Branch XXXMerchandise available for sale XXXLess: Merchandise inventory ending (XXX)




Net profit/loss from Head Office XXX/(XXX)

Add: Branch Account:

Branch net profit/loss XXX/(XXX)

Realized allowance for over valuation XXX

Adjusted Branch account XXX/(XXX)

Adjusted net profit/loss XXX/(XXX)


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CONSOLIDATED INCOME STATEMENTSales revenue XXX

Less: Sales return / sales discount (XXX)

Net sales XXX



Merchandise available for sale XXX

Less: Merchandise inventory ending (XXX)




Net profit/loss XXX/(XXX)

BALANCE SHEET IN BRANCH BOOK

Assets EquitiesCurrent Assets: Liabilities:

Cash XXX Accounts payable XXX

Accounts receivable XXX Salaries payable XXX

Merchandise inventory XXX Total liabilities XXX

Total current assets XXXOwners Equity:

Fixed Assets: Head Office XXX

Equipment XXX Add: Branch profit XXX

Less: All for depreciation (XXX) Total owners equity XXX

Total fixed assets XXX

Total assets XXX Total equities XXX

BALANCE SHEET IN HEAD OFFICE BOOKAssets Equities

Current Assets: Liabilities:

Cash XXX Accounts payable XXXAccounts receivable XXX Salaries payable XXX

Merchandise inventory XXX Total liabilities XXX

Branch account XXX

Total current assets XXX Owners Equity:

Capital XXXFixed Assets: Add: Branch profit XXX

Equipment XXX Add: Head Office net profit XXX

Less: Allowance for

depreciation

(XXX) Add: Allowance for over

valuation

XXX

Total fixed assets XXX Total owners equity XXX



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CONSOLIDATED BALANCE SHEETAssets Equities

Current Assets: Liabilities:

Cash XXX Accounts payable XXX

Accounts receivable XXX Salaries payable XXXMerchandise inventory XXX Total liabilities XXX

Total current assets XXXOwners Equity:

Fixed Assets: Capital XXX

Equipment XXX Add: Branch profit XXX

Less: All for depreciation (XXX) Add: Head Office profit XXX

Total fixed assets XXX Total owners equity XXX


ILLUSTRATION # 3: (FINANCIAL STATEMENTS)

Following are the details of head office and branch on 31 December 2010:Head Office Branch Office

Debit Credit Debit Credit

Merchandise inventory (opening) 7,500 --- 3,750 ---

Purchases 30,000 --- 11,250 ---

Goods sent to Branch --- 18,750 --- ---

Goods received from Head Office --- --- 22,500 ---

Allowance for overvaluation --- 4,125 --- ---

Sales --- 41,250 --- 33,750

Operating expenses 6,750 --- 2,250 ---

Additional Information on 31 December 2010:

1. Closing inventory: Head Office Rs.6,000 and Branch Rs.9,750 including Rs.750purchases from outsiders.

REQUIREDa) Prepare Branch Income Statement.b) Prepare Head Office Income Statement.c) Prepare Consolidated Income Statement.

SOLUTION # 3:Branch Book

Income Statement

For the Period Ended 31 December 2010

Sales 33,750

Less: Cost of Goods Sold:

Merchandise inventory opening 3,750

Add: Net purchases 11,250

Add: Merchandise received from Head Office 22,500

Merchandise available for sale 37,500

Less: Merchandise inventory ending (9,750)

Cost of goods sold (27,750)

Gross profit 6,000

Less: Operating expenses (2,250)

Net profit 3,750


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Head Office Book

Income Statement


Sales 41,250

Less: Cost of Goods Sold:Merchandise inventory opening 7,500

Add: Net purchases 30,000

Less: Merchandise send to Branch (18,750)

Merchandise available for sale 18,750

Less: Merchandise inventory ending (6,000)


Gross profit 28,500

Less: Operating expenses (6,750)

Net profit from Head Office operation 21,750

Add: Branch Account:

Branch net profit 3,750Realized allowance for over valuation 2,626

Adjusted Branch account 6,375

Adjusted net profit 28,125

Computation of Realized Allowance for Overvaluation:

Particulars Billed CostAllowance for over

valuation

Merchandise inventory beginning 3,750 3,375 375

Add: Merchandise supplied to branch 22,500 18,750 3,750

Unadjusted allowance for overvaluation 26,250 22,125 4,125

Less: Merchandise inventory ending (Branch) (9,000) (7,500) (1,500)Adjusted allowance for overvaluation 17,250 14,625 2,625

Computation of Allowance for Overvaluation Rate:

Allowance for overvaluation percentage = Allowance for overvaluation X 100

Cost price

Allowance for overvaluation percentage = 3,750 X 100

18,750Allowance for overvaluation percentage = 20%

Computation of Allowance for Overvaluation:

Allowance for overvaluation = Billed price x Allowance forovervaluation percentage (%)

Billed percentage (%)

Allowance for overvaluation = 9,000 x 20%

120%



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Consolidated Income Statement


Sales (41,250 + 33,750) 75,000

Less: Cost of Goods Sold:

Merchandise inventory opening (7,500 + 3,375) 10,875Add: Net purchases (30,000 + 11,250) 41,250

Merchandise available for sale 52,125Less: Merchandise inventory ending (6,000 + 750 + 7,500) (14,250)


Gross profit 37,125

Less: Operating expenses (6,750 + 2,250) (9,000)

Net profit 28,125


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PRACTICE QUESTIONSQuestion # 1:

The following are selected transactions of Shalimar Branch working independently for the

month of August 1998:

1.

Received merchandise form Head Office at a billed price of Rs.300,000.2. Returned merchandise to Head Office at a billed price of Rs.15,000.3. Purchased merchandise from the local market for Rs.150,000 on account.4. Returned merchandise to the seller worth Rs.7,500.5. Sold merchandise for Rs.52,500 on account.6. Paid operating expenses Rs.30,000.7. Received intimation from the Head Office that it had paid Branch operating expenses

Rs.12,000.Other Data:

(a)Accrued operating expenses Rs.9,000.(b)Prepaid operating expenses Rs.6,000.(c)

Merchandise inventory beginning Rs.123,000 and ending Rs.117,000.REQUIRED

Entries in Branch General Journal including adjusting and closing entries.

Question # 2:

Ismail & Company opened a Branch at Hyderabad. The transactions of Head Office and its

Branches are as under:-

Head Office:

1. Purchase merchandise on account Rs.750,000.2. Remitted cash to Branch Rs.375,000.3. Shipped merchandise to Branch at a cost of Rs.450,000.4.

Paid salaries of the Branch Rs.112,500.5. Paid the accounts payable of the Branch Rs.75,000.

6. Collected cash from Branch accounts receivable Rs.112,500.Branch:

1. Purchase merchandise on credit Rs.187,500.2. Sold merchandise for cash Rs.225,000.3. Sold merchandise on credit Rs.525,000.4. Purchase furniture for cash Rs.187,500.5. Paid the accounts payable of the Head Office Rs.112,500.6. Paid the rent in advance Rs.150,000.

REQUIRED

Give the necessary journal entries in the books of Head Office and Branch respectivelyrecording the reciprocal transactions in both the books.

Question # 3:

The Head Office of Zubair and Company carries all Branch plant assets in its own ledger.

Give entries that would appear in the books of Head Office and Branch as a result of thefollowing transactions:

1. The Head Office purchases Branch equipment for cash Rs.120,000.2. The Branch pays Rs.9,000 for the installation of the equipment.3. The Branch pays Rs.6,000 for the insurance of the equipment.4. The Head Office records depreciation on the equipment Rs.6,000.


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Question # 4:

On January 1, 1993 Hafiz & Co. Karachi opened a Branch at Larkana, following is the

information for the month of January 1993.

1. Shifted to the Branch goods billed at Rs.135,000.2.

During the month additional shipment was made at billed price of Rs.54,000.3. During the month Branch returned merchandise of billed price of Rs.3,375.

4. At January 31, 1993 Branch inventory at billed price was Rs.45,000.5. Branch reported a loss for January Rs.6,750.

The Head Office has followed a practice of billing the Branch at 20% above cost ofmerchandise.

REQUIRED

Give the journal entries on the books of Head Office to record the above transactions and to

record overvaluation adjustments. (Show necessary computations).

Question # 5:

On March 1, 2005 a company of Karachi opened a Branch at Lahore. The information for themonth is as under:

1. Goods supplied to Branch at billed price for Rs.247,500.2. During the month additional shipment was made at billed price of Rs.97,200.3. Goods returned by Branch at billed price of Rs.6,075.4. Merchandise valued at Branch on March 31, 2005 for Rs.81,000.5. The Head Office had followed the practice of billing the Branch at 25% above cost.

REQUIRED

Give the journal entries in the books of Head Office to record the above transactions and to

record overvaluation adjustment.

Question # 6:

On January 1, 2006, Bilal Co. of Karachi opened a Branch at Multan. Following is the

information for the month of January 2006:1. Sent merchandise to Branch at billed price of Rs.144,000.2. During the month additional shipment was made at billed price of Rs.90,000.3. Branch returned merchandise of billed price Rs.7,200 during January.4. At the end of January the inventory (at billed price) held by Branch amounted to

Rs.45,000.5. Branch reported net profit of Rs.6,000 for the month.

The Head Office followed the practice of billing the Branch at 20% above cost of

merchandise.

REQUIRED

(1)Give journal entries in the books of Head Office including adjustment ofovervaluation.

(2)Give journal entries in the books of Multan Branch.Note: Where computation of overvaluation is required entries without computation will

not be accepted.


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Question # 7:

Following are the transactions entered into by Zafar Co. Ltd. with its Branch at Hyderabad

during the year ended June 30, 2007. The Head Office billed merchandise to Branch at 25%

above cost.

1.

Shipped to the Branch merchandise billed at Rs.105,000.2. The Branch returned merchandise at billed price of Rs.2,250.3. At June 30, the Branch inventory was valued at billed price of Rs.4,500.4. The Branch reported a loss of Rs.6,750 for the year.

REQUIRED(i) Give journal entries on the books of Head Office to record above transactions.(ii)Calculate and record the profit it from allowance for overvaluation.

Question # 8:

On 1stOctober 2004, Fahad Traders of Karachi opened a Branch at Islamabad by sending

goods at a billed price of Rs.405,000. On 15th Nov. additional shipment was made at a billed

price of Rs.162,000. On 20

th

Nov. the Branch returned goods worth Rs.12,000.On 31stDec. 2004, the Branch reported a net loss of Rs.23,400 and goods unsold (inventory)

at billed price of Rs.135,000. The Head Office invoices goods at 25% above cost.

REQUIRED(1)Show over-valuation adjustment with necessary computation in Head Office books.(2)Record the above transactions (including incorporation of Branch profit/loss and over-

valuation adjustment) in the Head Office journal.

Question # 9:

Pak Trading Co. with its Head Office in Karachi has a number of Branches operating

independently almost in all the cities of Pakistan. Given below are the transactions and

accounting data concerning Head Office & its Multan Branch for the month of November

2001. The Head Office bills merchandise to all its Branches at 25% above cost.

1. Multan Branch reported merchandise inventory at November 01 valued at Rs.18,750(comprising exclusively of shipments from Head Office).

2. Multan Branch received merchandise shipment from Head Office at billed price ofRs.56,250.

3. Multan Branch returned merchandise against shipment in (2) at billed price ofRs.3,750.

4. Multan Branch received another shipment from Head Office at billed price ofRs.75,000.

5. A November 30, Multan Branch valued its inventory at Rs.28,125. The Branch is notauthorized to make merchandise purchases from its local market.

REQUIRED

1) Give entries in General Journal of Multan Branch to record transactions numbered 2,3 and 4.

2) Give an adjusting entry in the General Journal of Head Office to record profit fromallowance for over-valuation.

3) Set up a T-account for allowance for over-valuation in the ledger of Head Office, postrelevant entries into it. Balance and rule off the account.

4) Show all the necessary computations on Head Office books.


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Question # 10:

On January 1, 2005 Printlake Co. opened a Branch at Quetta. Following is the information

for the month of January 2005.

The Head Office has followed the practice of billing the Branch at 25% above cost.

1.

Goods supplied to Branch at billed price Rs.600,000.2. During the month additional shipment was made at billed price of Rs.72,000.3. Goods returned by Branch at billed price of Rs.60,000.4. Cash remitted to Branch Rs.75,000.5. Branch purchased locally Rs.120,000.6. Sales by Branch Rs.750,000.7. Branch incurred operating expenses Rs.90,000.8. Merchandise valued at Branch on January 31, 2005 Rs.225,000 including 10% of

local purchases.

REQUIRED

Give the journal entries in the books of Head Office and Branch office to record the above

transactions and to record overvaluation and closing entries.

Question # 11:

Bashir Jan Muhammad & Co. of Karachi opened a Branch at Pindi. The Head Office andBranch selected transactions for the year ended December 31, 1990 were as under:-

1. The Head Office sent merchandise to Branch costing Rs.450,000 at a billed price ofRs.600,000.

2. The Head Office paid Branch salaries Rs.120,000.3. The Branch sold goods for cash Rs.1,350,000.4. The Branch paid Head Office accounts payable Rs.150,000.5. The Head Office collected Branch accounts receivable Rs.225,000.6. The Branch returned goods to Head Office at a billed price of Rs.75,000.7. The Head Office paid Branch accounts payable Rs.90,000.8. The Branch paid Branch shop rent Rs.180,000.9. The Branch reported a net loss of Rs.45,000.10.The Branch reported merchandise ending at billed price of Rs.60,000.

REQUIRED

Prepare entries in proper form in General Journals of:

(a)Head Office including adjustment of allowance for overvaluation and closing ofBranch expense and revenue summary account.

(b)Branch.Question # 12:

M/S. Nazeer Company Clifton, Karachi has a Branch in Lahore the goods are billed to the

Branch at 20% above cost. All expenses of the Branch are paid by the Head Office. The

following particulars are available with Branch on January 31, 2009:

Opening Balances of January 1, 2009:

Merchandise inventory at bill price 82,500

Goods received from Head Office at billed price 150,000

Expenses Paid by Head Office:

Rent 4,500

Salary and other expenses 8,250


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Remittance to Head Office:

Cash sales 19,875

Cash collected from customers 157,500

Goods returned to head office against the shipment 3,000

Merchandise inventory at billed price 97,500REQUIRED

(1)Prepare entries in the books of Head Office and Branch.(2)Prepare allowance for overvaluation account.(3)Find profit from allowance from overvaluation & prepare supporting adjusting

entry.

Question # 13:

The following are the selected transactions of Head Office and its Branches: -

1. Head Office sent merchandise to Branch A and Branch B, costing Rs.120,000 andRs.150,000 respectively.

2.

Branch A reported net income of Rs.15,000 and ending inventory of Rs.30,000.3. Branch B reported net loss of Rs.7,500 and ending inventory of Rs.45,000.The Head Office bills merchandise at 20% above cost.

REQUIRED(a)General Journal entries in Head Office books including entries for adjustments of

allowance for overvaluation accounts and closing of Branch income summary

accounts.

(b)General Journal entries in the books of the Branches.Question # 14:

Mehdi Corporation bills merchandise to its E-Branch at cost and maintains complete

accounting records under perpetual inventory system. Equipment and other fixed assets

used at Branch are carried in home office books. Transactions during December 2009, the

first month of E-Branch operations are summarized below:1. Cash Rs.15,000 was forwarded to E-Branch.2. Merchandise costing Rs.900,000 was shipped by Head Office to E-Branch.3. Equipment was acquired by E-Branch for Rs.22,500 cash.4. Credit sales by Branch amounted to Rs.1,200,000 costing Rs.675,000.5. Collection of accounts receivable by E-Branch Rs.930,000.6. Payment of operating expenses by E-Branch totaled Rs.300,000.7. Cash Rs.562,500 remitted by E-Branch to Head Office.8. Operating expenses paid by Head Office and charged to E-Branch amounted to

Rs.45,000.

REQUIRED

General Journal entries in the books of:

(i) E-Branch and(ii)Head Office


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Question # 15:

A Karachi firm whose accounting year ends on 31st December has two Branches one at

Hyderabad and the other at Multan. The Branches keep a complete set of books. On 31st

December, 1996 the Hyderabad and the Multan Branches account in the Head Office books

showed debit balance of Rs.456,750 and Rs.675,000 respectively before taking thefollowing information into account.

1. Merchandise valued Rs.30,000 were transferred from Hyderabad to Multan Branchunder the instruction from Head Office.

2. The Hyderabad Branch collected Rs.37,500 from a customer of Head Office.3. The Multan Branch paid Rs.75,000 for certain goods purchased by the Head Office.4. Rs.75,000 remitted by the Hyderabad Branch to the Head Office on 29th December,

1996 was received on 3rd January, 1997.

5. The Multan Branch received on behalf of the Head Office Rs.22,500 as dividend froma Multan Co.

6. For the year 1996, the Hyderabad Branch showed a net loss of Rs.18,750 and theMultan Branch a net profit of Rs.81,000.REQUIRED

Pass journal entries to record these matters in the Head Office books and then write up the

two Branches accounts therein.

Question # 16:

Next-door Grocers, Karachi (Head Office) deals in wholesale grocery. The company has two

Branches, one at Islamabad and the other at Faisalabad. The Branches keep a complete set

of books.

On July 1, 2005 the Head Office books showed the following balances in the Branches

accounts:

Islamabad Branch -------------------------------------------------------- Rs.750,000

Faisalabad Branch ------------------------------------------------------- Rs.675,000

Some of the transactions between the Head Office and the two Branches for the year arelisted below:

Under the Head Office instructions, Islamabad Branch collected Rs.225,000 from the

customers of Faisalabad Branch and remitted Rs.150,000 to Faisalabad Branch and

Rs.75,000 to Head Office.

Faisalabad Branch transferred merchandise valued Rs.150,000 to Islamabad Branch andpaid Rs.15,000 cash for transporting the goods.

Head Office paid Faisalabad Branch suppliers Rs.180,000 cash.

Islamabad Branch paid Head Office suppliers Rs.120,000 cash.

Islamabad Branch showed a net profit of Rs.300,000 and Faisalabad Branch showed a net

loss of Rs.30,000.

REQUIRED

(a)Journal entries in the Head Office and the Branches books.(b)The two Branches accounts in the Head Office books.


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Question # 17:

Auto Parts Company operates several sales and service outlets (Branches) throughout

Karachi. A decentralized accounting system is used by each Branch. At the end of November

2006 the following reciprocal accounts appear in the accounting records of the Hyderi

Branch and the Head Office:Branch records: Head Office (credit balance) Rs.269,550.

Head Office records: Hyderi Branch (debit balance) Rs.258,150.

The reason for the discrepancy in the amount shown in the two accounts is that the Branch

net income for November Rs.27,000 and a cash deposit made by the Branch to the accountof the Head Office, Rs.15,600, have not been recorded by the Head Office.

Both the Branch and the Head Office use a perpetual inventory system. During December

2006, the following transactions affected the two accounts.

December 6. Head Office shipped auto parts to Hyderi Branch, Rs.108,750. Debit inventory

account on Branch books, credit inventory account on the Head Office books.

December 12. Branch transferred Rs.74,250 from its bank account to the bank account of

the Head Office.December 19. Branch returned shop supplies costing Rs.9,150 to the Head Office. Supplies

are recorded in the shop supplies account in both sets of accounts.

December 30. Head Office notified Branch that operating expenses Rs.16,500 which hadbeen recorded in the accounts of the Head Office in the operating expense

account were chargeable to Hyderi Branch.

December 31. The income summary account in the accounts of the Branch showed a debit

balance of Rs.8,850 at the end of December.

REQUIRED

(a)Record the transactions listed above in the accounts of the Hyderi Branch.(b)Record the two transactions relating to the month of November and all transactions

for December in the accounts of the Head Office.

(c)Determine the balance in the Head Office account and the Hyderi Branch account atthe end of Dec.

Question # 18:

The following home office account with selected entries is taken from the Pindi Branchledger:

HOME OFFICE

1999 1999March 5 Returns against Jan. 1 Balance 270,000

Goods shipments 13,500 Feb. 6 Goods shipments 90,000

Dec. 31 Net loss 18,600 June 8 Goods shipments 54,000Dec. 10 Corrected overstated

bad debts for 1998

7,500

Pindi Branch reported inventories at billed price: at Jan. 1, 1999 Rs.36,000/= and at

December 31, 1999 Rs.27,000/=. The home office bills merchandise to its Branches at 20%

above cost.

REQUIRED

Give all reciprocal entries in the home office general journal including adjusting entry to

record profit from allowance for overvaluation for 1999, and closing entry. Entries without

supporting computations are not acceptable.


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Question # 19:

The Head Office account appears in the books of its Branch as shown below:

Head Office

1990 1990

June 12 Remittance to H/O 22,500 June 1 Balance 75,000June 14 Merchandise returns 1,500 June 5 Merchandise

shipments 21,000June 25 Payment of H/O

accounts payable 7,500

June 20 Overstatement of

depreciation of 1989 1,800

June 30 Payment of Head Office

expense 4,500

June 24 Collection of Head

Office accounts 6,000

June 30 Payment of H/O note 6,000

REQUIRED

Entries in General Journal of Head Office affecting Branch account.

Question # 20:On July 31, 1990 the balance of Branch account on the books of Head Office and the balance

of Head Office account on the books of Branch are not agreed. On comparison the following

items were detected:

1. The Branch returned merchandise of Rs.18,000 to the Head Office on July 20, but themerchandise was received by the Head Office after July 31, 1990.

2. The Head Office collected Branch accounts receivable of Rs.75,000 but forgot tointimate the Branch.

3. The Head Office paid Rs.21,000 for Branch expense but the item was not recorded bythe Branch.

4. The Head Office paid Rs.11,790 for freight on merchandise but the Branch recordedthe amount as Rs.10,170.REQUIRED

Give adjusting entries on the books of Head Office and the Branch respectively for the above

items.

Question # 21:

On June 30, 1995 the Branch account in the Head Office books of the Paramount (Pvt.) Ltd.

shows a balance of Rs.151,200 and the Head Office account in the books of Branch shows a

balance of Rs.175,230. The following items are responsible for the difference:

1. Merchandise billed at Rs.25,800 was supplied by the Head Office to the Branch onJune 28. The merchandise was not received by the Branch till June 30.

2. The Branch collected a Head Office accounts receivable of Rs.60,000 but failed toinform the Head Office.

3. The Head Office recorded the profit of the Branch for the month of May Rs.20,250.This was an error, as the Branch reported a profit of Rs.22,950.

4. The Head Office has not charged Rs.12,870 in respect of merchandise returned bythe Branch to the Head Office. The merchandise was in transit.

REQUIRED

a) Prepare a reconciliation statement.b) Pass necessary journal entries in the books of the Head Office and Branch.


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Question # 22:

Seiko (Pvt.) Ltd. sent merchandise worth Rs.90,000 to his Branch No. 1 Lahore and paid

transporting cost Rs.2,700 for the same. On the request of Branch No. 2 Faisalabad, Seiko

advised to Lahore Branch to transfer the same consignment of Rs.90,000 to Faisalabad

Branch. Lahore Branch sent the same to Faisalabad and paid Rs.2,250 as transportationcharges of the same.

REQUIRED

Journal entries in the books of:

1. Seiko (Pvt.) Ltd. Head Office 2. Lahore Branch 3. Faisalabad BranchIt is noted that if the merchandise had been supplied from the Head Office to the Faisalabad

the transporting charges would have been Rs.1,575.

Question # 23:

The Karachi Head Office of Al-Amin Company consigned to Lahore Branch goods costing

Rs.90,000 and freight paid Rs.7,500. Later on the Head Office directed the Lahore Branch to

transfer the entire consignment to Jhelum Branch. The Lahore Branch dully executed thedirectives and paid additional freight Rs.1,500. If the goods had been sent to Jhelum Branch

directly by the Head Office, the freight charges would have been Rs.8,400.

REQUIREDGive entries in General Journal of:

4. Head Office 5. Lahore Branch 6. Jhelum BranchQuestion # 24:

Head Office in Karachi shipped merchandise to its Islamabad Branch costing Rs.30,000

billed at 25% above cost and Rs.3,750 transportation charges. Subsequently Head Office

instructed Islamabad Branch to send this merchandise shipment to Multan Branch.

Islamabad Branch compiled with instructions and paid transportation charges of Rs.750 for

sending the shipment to Multan Branch. If the merchandise had been sent by the Head

Office direct to Multan Branch, the normal transportation charge would have been Rs.3,000.REQUIRED

Record the above transactions in the general journal of Head Office, Islamabad Branch and

Multan Branch.

Question # 25:Asad Ltd. sent merchandise costing Rs.90,000 which was billed at 20% above cost to its

Lahore Branch and paid transportation cost of Rs.11,700.

On request of the Faisalabad Branch, Asad Ltd. advised Lahore Branch to transfer the same

shipment to Faisalabad Branch. Lahore Branch sent the same to Faisalabad Branch and paid

transportation charges Rs.3,300.

REQUIRED

Pass journal entries in the books of:

(1)Asad Ltd.(2)Lahore Branch.(3)Faisalabad Branch.

Note: If the merchandise had been supplied directly by the Head Office (Asad Ltd.) to

Faisalabad Branch the transportation charges would have been Rs.12,000.


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Question # 26:

Bilal Corporation at Karachi newly established its Branch at Sukkur. The Head Office

supplies goods to the Branch at 125% of cost. Summarized data of the Branchs transactions

for the year 2003, are as under:

1.

Goods received from Head Office at billed price Rs.720,000.2. Local purchases on account Rs.180,000.3. Credit sales to customers Rs.450,000 and sales for cash Rs.276,000.4. Cash collected from customers Rs.375,000.5. Paid to suppliers Rs.105,000.6. Returned goods to Head Office Rs.9,000.7. Remitted cash to Head Office Rs.270,000.8. Branch expenses paid by Branch Rs.25,200 and by Head Office Rs.1,200.

Data for Adjustment on 31-12-2003

(1)Accrued operating expenses Rs.900.(2)Ending inventory of merchandise: Rs.24,000 consisted of local purchases and

Rs.22,500 consisted of shipment from Head Office.REQUIRED

(a)Prepare journal entries (including adjusting and closing) in the Branch.(b)Journal entries in the Head Office books to incorporate Branch profit or loss and

adjustment of overvaluation.

(c)Show computation of overvaluation adjustment.Question # 27:

The trial balance of Pindi Branch of Ashraf Corporation on December 31, 2001 is given

below. The Head Office bills the Branch for merchandise at cost plus 25%.

Title of Account Debit Credit

Cash 75,000

Office supplies 12,000

Merchandise inventory January 1 240,000Accounts receivable 225,000

Land 180,000

Office equipment 120,000

Allowance for depreciation Office equipment 7,500

Accounts payable 105,000Notes payable 45,000

Head Office 796,500

Sales 900,000

Sales returns & allowances 45,000

Purchases 75,000

Transportation in 6,000

Purchases returns & allowances 9,000

Merchandise received from Head Office 750,000

Merchandise returned to Head Office 30,000

Selling expenses 75,000

General expenses 90,000

Total 1,893,000 1,893,000


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Additional Information on December 31, 2001

(a)Office supplies used Rs.7,500.(b)Prepaid selling expenses Rs.10,500.(c)Accrued general expenses Rs.12,000.(d)

Depreciation on office equipment Rs.7,500.(e)Merchandise inventories: 1.1.2001 31.12.2001Received from Head Office at bill price Rs.180,000 Rs.225,000

Purchase from outsiders at cost 60,000 57,000

Total 240,000 282,000REQUIRED

(a)Prepare adjusting and closing entries in the books of Pindi Branch.(b)Prepare entries in the journal of Head Office to incorporate Pindi Branch profit or

loss and to adjust the allowance for overvaluation account and also close out the

Pindi Branch profit & loss account.

Question # 28:On December 31, 1997 the end of monthly trial balance for W.S. Company Branch number

A1 shows balances as listed below. The Head Office bills the Branch for merchandise at cost

plus 20%.Cash 34,350 Notes payable 22,500

Merchandise 243,000 Head Office 450,000

Store equipment 120,000 Sales 427,500

Allowance for depreciation

Store equipment 6,000

Merchandise supplies from

Head Office 236,250

Store supplies 9,000 Purchases 67,500

Accounts payable 75,600 Selling expenses 67,500

Lands 135,000 General expenses 69,000

The following data is available on December 31:

(a)Physical store supplies inventory Rs.3,600.(b)Accrued selling expenses Rs.1,200.(c)Depreciation of equipment to be charged for December 1997 @ 1% per month.(d)Prepaid selling expenses Rs.3,750.

Merchandise Inventories: December 1 December 31

Amount received from Head Office at billed price 180,000 207,000Amount purchased from outsider at cost 63,000 58,500

Total 243,000 265,500

The Head Office notifies the Branch on December 31 that it has paid off the Branch note for

Rs.22,500.REQUIRED

(a)Prepare adjusting and closing entries in the books of Branch A 1.(b)Give journal entries on the books of Head Office summarizing Branch operations for

the month.


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Question # 29:

A new independent Branch has opened by M/S. Karimi & Co. at Hyderabad. The practice of

the trader is that the goods are sent to Branch at 25% above cost. The summary of

transaction (2 months) is narrated below. You are asked to:

(a)Pass journal entries in the books of the Branch (including adjusting and closing).(b)Pass General Journal entries to record the Branch net income and adjustment of netincome as reported by the Branch (in the books of Head Office).

Summary of the Transactions:

1. Goods supplies to Branch invoiced at cost plus 25% Rs.600,000 and remitted cashRs.75,000.

2. Purchase by the Branch, cash Rs.60,000 and on credit Rs.90,000.3. Sales by the Branch, cash Rs.187,500 and on account Rs.525,000.4. Equipment supplied by the Head Office Rs.45,000.5. Cash collection from customers Rs.300,000.6. Payment to creditors Rs.52,500.7.

Expenses paid by the Branch:a. Salaries expenses Rs.30,000.

b. Rent & rates expenses Rs.6,000.c. Utilities expenses Rs.1,500.d. Advertising expenses Rs.3,750.e. Delivery expenses Rs.2,250.f. Salesman salary Rs.4,500

8. Expenses charged by the Head Office to the Branch office Rs.2,250.9. Cash remitted to Head Office Rs.262,500.

Adjustments:

1. Office salary accrued Rs.1,500.2. Gas and electric charges accrued and not paid Rs.750.3. Advertising expenses paid in advance Rs.1,125.4. Depreciate equipment at 10%.5. Merchandise inventory on December 31, 1994:

Purchase from local market 22,500

Amount received from Head Office 187,500

210,000

Question # 30:

Karachi Head Office has a Branch at Multan. Decentralized accounting is followed. The Head

Office supplies goods to Branch at 20% above cost. Data relating to the Branch for 1991 are

summarized below:a) Goods supplied to Branch, billed price Rs.360,000.b) Cash remitted to Branch Rs.45,000.c) Branch purchased goods from local market on account Rs.90,000.d) Operating expenses paid by Branch Rs.12,600.e) Head Office paid Branch operating expenses Rs.600.f) Cash remitted to Head Office Rs.135,000.g) Branch sold merchandise for cash Rs.438,000.

Data for Adjustments on 31 12 1991:

1. Accrued operating expense Rs.1,800.2. Prepaid operating expense Rs.1,350.3.

Ending inventory values at Rs.12,000 of purchase from local market and Rs.112,500of goods supplied by Head Office.


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REQUIRED

1. Journal entries including adjusting and closing entries in the books of the Branch.2. Journal entries in the books of the Head Office to record Branch net income or loss,

and for adjustment of overvaluation. (Show the necessary computations).

Question # 31:

The Nishat Corporation of Karachi sends merchandise to its Branch at Lahore at 140% of

cost. The income statement data of the Branch is as follows:

Merchandise inventory (Jan. 1, 2002) Rs.25,200.Shipment from Head Office Rs.294,000.

Merchandise returned to Head Office Rs.16,800.

Sales (including cash sales of Rs.150,000 remitted to Head Office) Rs.345,000.

Salaries expenses (paid by Head Office) Rs.27,000.

Rent expenses Rs.3,000.

Merchandise inventory Dec. 31, 2002 Rs.33,600.

REQUIRED(i) Branch income statement for the year ended Dec. 31, 2002.(ii)Give all reciprocal entries in the Head Office books including adjusting entry to record

profit from overvaluation for 2002 & also pass the necessary closing entry.

Question # 32:

M/S. Nisar & Co. of Karachi have established a Branch at Hyderabad. The Branch balance

sheet as on June 30, 1994 is as follows:

Assets: Rupees Rupees

Cash 243,000

Accounts receivable 1,098,000

Less: Allowance for bad debts (76,500) 1,021,500

Merchandise inventory 1,485,000

Prepaid expenses 31,500

Furniture 346,500

Less: Allowance for depreciation (243,000) 103,500

Total assets 2,884,500

Equities: Rupees RupeesAccounts payable 135,000

Accrued expenses 54,000

Head Office 2,695,500

Total equities 2,884,500

Branch transactions during July 1, 1993 June 30, 1994 are as under:-1. Expenses paid by Head Office and charged to Branch 72,0002. Sales on account 3,240,0003. Purchases on account 765,0004. Expenses paid 1,116,0005. Goods received from Head Office billing at cost 1,800,0006. Cash remittance to Head Office 1,404,0007. Collection of accounts 3,120,0008. Bad debts written off 57,0009. Payment on account 729,000


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Adjustments:

Merchandise on hand 1,980,000

Prepaid expenses 40,500

Accrued expenses 72,000

Depreciation for the year 54,000Allowance for bad debts to be kept at 72,000

REQUIRED

a) Prepare necessary journal entries in the books of Branch for the year to record theabove transactions including adjusting and closing entries.

b) Prepare balance sheet and income statement of Branch as on June 30, 1994.Question # 33:

Partial financial data from Pony Sales Co. with its Head Office at Karachi and its Bless

Branch at Hyderabad for 1996 as follows:

Head Office Bless Branch

Sales 159,000 ---Inventory merchandise Jan. 1 (at cost) 17,250 ---

Inventory merchandise Jan. 1 (at billed) --- 6,675

Purchases 123,000 ---

Shipment to Bless Branch (at cost) 31,500 ---

Shipment from Head Office (at billed price) --- 37,800

Inventory, December 31 (at cost) 21,375 ---

Inventory, December 31 (at billed price) --- 8,775

Operating expenses 57,300 ---

The Head Office bills the Branch for merchandise shipments as follows:

In 1995, 25% above cost. In 1996, 20% above cost.

REQUIRED

Prepare Head Office income statement showing on it the Branch net loss of Rs.3,750 and the

profit from overvaluation for 1996. Computations are necessary.

Question # 34:

Following are some of the items extracted from the books of Khursheed & Hassan CompanyKarachi and its Lahore Branch:

Head Office Branch

Cash 600,000 270,000

Inventory (opening) 225,000 300,000

Purchases 270,000 90,000Sales revenue 481,500 450,000

Goods sent to Branch 90,000 ---

Goods received from Head Office --- 112,500

Salaries expense 30,000 15,000

Prepaid rent 18,000 12,000

Allowance for overvaluation 30,000 ---

On December 31, 2008 data for adjustment:

Head Office: Inventory valued Rs.45,000, Prepaid salaries Rs.18,000 and prepaid rent

Rs.12,000.

Branch: Inventory with respect to Head Office Rs.22,500 and of local purchasesRs.18,000. Accrued salaries Rs.22,500 and rent expired during the period

Rs.3,000.


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REQUIRED

1. Allowance for overvaluation in opening inventory.2. Rate of allowance for overvaluation.3. Adjusting entry of allowance for overvaluation.4.

Prepare Consolidated Income Statement for the year ended December 31, 2008.

Question # 35:

The following are some of the selected balances taken out from the trial balance of Head

Office and Branch on December 31, 1992:

Head Office Branch

Merchandise inventory (Opening) 43,500 37,500

Sales revenue 450,000 225,000

Purchases 450,000 ---

Purchase discount 7,500 ---

Goods sent to Branch 96,000 ---

Goods received from Head Office --- 120,000Allowance for overvaluation 27,000 ---

Salaries expense 30,000 7,500

Miscellaneous general expense 7,500 1,500

Adjustment Data:

Head Office Branch

Merchandise inventory (Ending) 60,000 30,000

Accrued salaries --- 1,500

Prepaid salaries 3,000 ---

Depreciation on equipment 4,500 750

REQUIRED

1. Income Statement of Branch.2. Consolidated Income Statement of Head Office and Branch.3. Entries in the books of Head Office to incorporate Branch net income and

adjustment of income resulting from overvaluation of merchandise.

Question # 36:Hyderabad Branch of AK Farooqui Company submitted the following trial balance data of

December 31, 2009 to its Head Office in Karachi:

Debit:

Balance at bank Rs.48,750; Cash in hand Rs.15,000; Accounts receivable Rs.112,500;

Purchases Rs.150,000; Rent & rates Rs.60,000; Utilities expenses Rs.11,250; Salaries

expenses Rs.41,250; Stock (January 1, 2009) Rs.93,750 (Total Rs.532,500)Credit:

Accounts payable Rs.135,000; Sales Rs.337,500; Head Office Rs.60,000 (Total Rs.532,500)

Additional Information:

The salaries include a sum of Rs.18,750 paid to the Branch manager, who is further entitled

to a commission at 7% on the net profit of the Branch before charging such commission,

which is payable after a month. The ending stock of the Branch amounted to Rs.142,500 and

utilities expenses payable Rs.6,000.

REQUIRED

From the above information prepare:

(i) Income statement of Hyderabad Branch (ii)Balance sheet as of Hyderabad Branch


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Question # 37:

The trial balance of Head Office and Branch office as June 30, 1992 were as under:

Head Office Branch Office

Debit Credit Debit Credit

Cash 129,000 --- 25,500 ---Accounts receivable 30,000 --- 12,000 ---

Merchandise inventory (opening) 15,000 --- 7,500 ---

Equipment 18,000 --- 9,000 ---

Accounts payable --- 15,000 --- 13,500

Capital --- 167,250 --- ---

Purchases 60,000 --- 22,500 ---

Goods sent to Branch --- 37,500 --- ---

Goods received from Head Office --- --- 45,000 ---

Allowance for overvaluation --- 8,250 --- ---

Branch / Head Office 45,000 --- --- 45,000

Sales --- 82,500 --- 67,500Operating expenses 13,500 --- 4,500 ---

Additional Information on June 30, 1992:

1. Closing inventory: Head Office Rs.12,000 and Branch Rs.19,500 including Rs.1,500purchases from outsiders.

2. Current year depreciation on equipment of Head Office Rs.3,750 and BranchRs.2,250.

REQUIRED

a) Prepare Branch Income Statement.b) Prepare Head Office Income Statement.c) Prepare Consolidated Income Statement.d) Prepare Branch Balance Sheet.e) Prepare Head Office Balance Sheet.f) Prepare Consolidated Balance Sheet.

Question # 38:

The trial balance of head office and Pindi branch of Shah Ltd. as 30 June 2003 were as

under:

Head Office Pindi Branch

Debit (Rs.) Credit (Rs.) Debit (Rs.) Credit (Rs.)

Cash 86,000 --- 17,000 ---

Accounts receivable 30,000 --- 8,000 ---

Merchandise inventory 10,000 --- 7,000 ---

Equipment 20,000 --- 11,000 ---

Accounts payable --- 16,000 --- 18,000

Capital --- ? --- ---

Purchases 53,000 --- 28,000 ---

Goods sent to branch --- 40,000 --- ---

Goods received from head office --- --- 50,000 ---

Purchase return and allowance --- 2,000 --- 1,000

Goods returned to head office --- --- --- 5,000

Goods returned by branch ? --- --- ---

Allowance for over valuation --- 12,000 --- ---Branch / Head office ? --- --- ?


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Sales --- 120,000 --- 90,000

Sales discount 3,000 --- 1,000 ---

Store supplies 20,000 --- 8,000 ---

Salaries expenses 18,000 --- 20,000 ---

General expenses 2,000 --- 9,000 ---Prepaid rent 4,000 --- 5,000 ---

Total ? ? 164,000 ?

Additional Information on 30 June 2003: Head Office Pindi Branch

i. Store supplies on hand ----------------------- Rs.18,000 ------- Rs.5,000ii. Depreciation on equipment ------------------ Rs.3,000 ------- Rs.1,000

iii. Commission receivable ------------------------ Rs.7,000 ------- Rs.2,000iv. Salaries expenses for the year -------------- Rs.20,000 ----- Rs.18,000v. Closing inventory at cost ---------------------- Rs.8,000 ----- Rs.12,000

(Including Rs.2,000 purchase

from outside)

REQUIREDa) Prepare income statement in the books of Pindi Branch at 30 June 2003.b) Prepare head office income statement showing branch profit or loss and allowance

for over valuation on 30 June 2003.c) Prepare consolidated income statement for the period 30 June 2003.d) Prepare Pindi branch balance sheet as on 30 June 2003.e) Prepare head office balance sheet as on 30 June 2003.f) Prepare consolidated balance sheet as on 30 June 2003.

2 branch accounting

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