2 Branch Accounting

Branch Accounting Chapter # 2

BRANCH ACCOUNTING Branch 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 in which Branches maintain their own records, which are later combined with Head Office records to prepare accounts for the whole business.

ACCOUNTING SYSTEM SYSTEM FOR A BRANCH There are two alternative systems: 1. The branch does not maintain a complete set of accounting records. The head office serves only as an accounting accoun ting and control center for the branches. 2. The branch maintains a complete set of accounting records consisting of journal entries and ledger accounts. Financials statements are prepared by the branch account 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 to account for all transactions 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 transactions with the branches. branches. It is debited for cash, merchandise 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 losses reported by the branch. 

METHODS OF BILLING MERCHANDISE SHIPMENT TO BRANCH Three 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 branch’s retail selling price.

ALLOWANCE FOR OVER VALUATION VALUATION Head 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 overvaluation percentage =

Allowance for overvaluation overvaluation Cost price

X 100

COMPUTATION OF ALLOWANCE FOR OVERVALUATION: Allowance for overvaluation overvaluation =

 

Billed price x Allowance for overvaluation 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 Merchandise inventory opening (Branch) Add: Merchandise sent to Branch Less: Merchandise returned by Branch Unadjusted allowance for overvaluation Less: Merchandise inventory ending (Branch) Adjusted allowance allowance for overvaluation overvaluation

Billed

Cost

XXX XXX (XXX) XXX (XXX) XXX

XXX XXX (XXX) XXX (XXX) XXX

Allowance for over valuation XXX XXX (XXX) XXX (XXX) XXX

GENERAL ENTRIES: Head Office Book 1. Purchase merchandise on account by Head Office. Purchases Debit No entry Accounts payable Credit

Branch Book

2. Head Office remitted (transferred) cash to Branch. Branch Debit Cash Cash Credit Head Office 3. Head Office sent goods to Branch at above cost. Branch Debit Merchandise supplied Merchandise supplied Credit Head Office Allowance for over valuation Credit

Debit Credit

Debit Credit

4. Head Office transferred cash to Branch for the salaries expense of Branch. Branch Debit Salaries expense Debit Cash Credit Head Office Credit 5. Head Office paid the liability of Branch. Branch Debit Accounts payable Cash Credit Head Office

Debit Credit

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

Debit Credit


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7. Branch purchase merchandise on account. Purchases No entry Accounts payable

Debit Credit

8. Merchandise Merchandise sold for cash by Branch. Cash No entry Sales

Debit Credit

9. Branch sold merchandise on account. Accounts receivable No entry Sales

Debit Credit

10. Branch purchase furniture for cash. No entry

Furniture Cash

Debit Credit

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

Debit Credit

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

Debit Credit

13. Branch returned goods to Head Office at billed price. Merchandise supplied returned Debit Head Office Allowance for over valuation Debit Merchandise supplied returned Branch Credit

Debit Credit

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

Debit Credit

15. Branch reported a net profit to Head Office. Branch Debit Expense and revenue summary Profit and loss account Credit Head Office

Debit Credit

16. Branch reported a net loss to Head Office. Profit and loss account Debit Head Office Branch Credit Expense and revenue summary

Debit Credit

17. Head Office adjusts the allowance for over valuation. Allowance for over valuation Debit No entry Profit and loss account Credit

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ILLUSTRATION # 1: Shah Shoes Company opened a branch at Hyderabad on 1 July 2004. The following information of Hyderabad branch and head office for the year ended 30 June 2005: a) Merchandise purchase on account by head office Rs.300,000. b) Cash received by branch from head office Rs.30,000. c) Goods received by branch from head office Rs.295,200 (costing Rs.246,000). d) Head office paid the liability of branch Rs.30,000. e) Head office received from the customers of branch Rs.50,000. f) Goods purchased by branch for cash Rs.15,800 and on account Rs.35,000. g) Sale by branch on cash Rs.64,000 and on account Rs.215,000. h) Salaries expenses of branch paid by head office Rs.62,200. i) Branch paid the liability of head office Rs.19,000. j) Collection on account by branch from customers of head office Rs.182,100. k) Cash sent to head office Rs.152,000 by branch. l) Defective goods returned by branch to head office at billed price of Rs.6,000. m) Branch paid the rent expense of the head office Rs.13,000. n) Furniture sent to branch by head office Rs.10,000. o) Branch reported a net profit of Rs.3,000 to the head office. p) Merchandise inventory on 30 June 2005 at branch Rs.55,200 (billed price). REQUIRED Make entries in the books of head office as well as in branch.

SOLUTION # 1:

Date 1

Shah Shoes Company Head Office Book General Journal Particulars

6

Purchases Accounts payable (To record the goods purchased on account) Hyderabad branch Cash (To record the cash remitted to branch) Hyderabad branch Merchandise supplied Allowance for overvaluation (To record the goods supplied to branch) Hyderabad branch Cash (To record the branch’s liability paid) Cash Hyderabad branch (To record the cash received from the customers of branch) No entry

7

No entry

2

3

4

5


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P/R

Debit 300,000

Credit 300,000

30,000 30,000 295,200 246,000 49,200 30,000 30,000 50,000 50,000


Date 8

9

10

11

12

13

14

15

16

Shah Shoes Company Head Office Book General Journal Particulars

P/R

Debit 62,200

Hyderabad branch Cash (To record the branch’s salaries paid) Accounts payable Hyderabad branch (To record the liability paid by branch) Hyderabad branch Accounts receivable (To record the cash received by branch from the customers of head office) Cash Hyderabad branch (To record the cash remitted by branch) Merchandise supplied returned Allowance for overvaluation Hyderabad branch (To record the goods returned by branch) Rent expense Hyderabad branch (To record the rent expense paid by branch) Hyderabad branch Furniture (To record the furniture sent to branch) Hyderabad branch Profit & loss account (To record the net profit reported by branch) Allowance for overvaluation Profit & loss account (To adjust the allowance for overvaluation account)

Credit 62,200

19,000 19,000 182,100 182,100

152,000 152,000 5,000 1,000 6,000 13,000 13,000 10,000 10,000 3,000 3,000 39,000 39,000

Computation of Realized Allowance for Overvaluation: Particulars

Billed

Merchandise supplied to branch Less: Merchandise returned by Branch Unadjusted allowance for overvaluation Less: Merchandise inventory ending (Branch) Adjusted allowance for overvaluation

Cost

295,200 246,000 (6,000) (5,000) 289,200 241,000 (55,200) (46,000) 234,000 195,000

Allowance for over valuation 49,200 (1,000) 48,200 (9,200) 39,000

Computation of Allowance for Overvaluation Rate: Allowance for overvaluation percentage = Allowance for overvaluation Cost price Allowance for overvaluation percentage = 49,200 246,000 Allowance for overvaluation percentage = 20%

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X 100 X 100



Computation of Allowance for Overvaluation: Allowance for overvaluation = Allowance for overvaluation = Allowance for overvaluation =

Billed price x Allowance for overvaluation percentage (%) Billed percentage (%) 5,000 x 20% 120% Rs.1,000

Allowance for overvaluation =

55,200 x 20% 120% Rs.9,200

Allowance for overvaluation =

Shah Shoes Company Hyderabad Branch Book General Journal Particulars P/R

Date 1

No entry

2

Cash

3

4

5

6

7

8

9

Credit

30,000

Head office (To record the cash received from head office) Merchandise supplied Head office (To record the goods received from head office) Accounts payable Head office (To record the liability paid by head office) Head office Accounts receivable (To record the cash collected from the customers by head office) Purchases Cash Accounts payable (To record the goods purchased on account and for cash) Cash Accounts receivable Sales (To record the goods sold for cash and on credit) Salaries expenses Head office (To record the salaries paid by head office) Head office Cash (To record the payment of liability of head office)


Debit

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30,000 295,200 295,200 30,000 30,000 50,000 50,000

50,800 15,800 35,000

64,000 215,000 279,000 62,200 62,200 19,000 19,000


Date 10

11

12

13

14

15

Shah Shoes Company Hyderabad Branch Book General Journal Particulars P/R Cash Head office (To record the cash collected from the customers of head office) Head office Cash (To record the cash remitted to head office) Head office Merchandise supplied return (To record the goods returned to head office) Head office Cash (To record the rent paid for head office) Furniture Head office (To record the furniture received from head office) Expense and revenue summary Head office (To record the net profit reported to head office)

Debit 182,100

Credit 182,100

152,000 152,000 6,000 6,000 13,000 13,000 10,000 10,000

3,000 3,000

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. REQUIRED Give entries in General Journal of: 1. Head Office 2. Branch “A” 3. Branch “B”

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SOLUTION # 2:

Date 1

2

Umair Company Head Office Book General Journal Particulars

P/R

Branch “A” Cash Merchandise supplied (To record the goods supplied to branch “A”) Branch “B” Inter branch freight charges Branch “A” (To record the inter branch freight charges)

Debit 48,750

Credit 3,750 45,000

49,200 300 49,500

Umair Company Branch “A” Book

Date 1

2

General Journal Particulars Merchandise supplied Freight charges Head office (To record the goods received from head office) Head office Freight charges Cash Merchandise supplied (To record the goods supplied to Branch “B” under the instruction of head office)

P/R

Debit 45,000 3,750

Credit

48,750 49,500 3,750 750 45,000

Umair Company Branch “B” Book

Date 1

General Journal Particulars Merchandise supplied Freight charges Head office (To record the goods received from Branch “A” under the instruction of head office)

P/R

Debit 45,000 4,200

Credit

49,200

FINANCIAL STATEMENTS Separate financial statements for branches should be prepared so that management can evaluate the performance of each branch. The branch’s 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, combined financial statements should be prepared for external users.


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INCOME STATEMENT IN BRANCH BOOK Sales revenue Less: Sales return / sales discount Net sales Less: Cost of Goods Sold: Merchandise inventory opening Add: Net purchases Add: Merchandise received from Head Office Total merchandise during the period Less: Merchandise returned to Head Office Merchandise available for sale Less: Merchandise inventory ending Cost of goods sold Gross profit/loss Less: Operating expenses Net profit/loss

XXX (XXX) XXX XXX XXX XXX XXX (XXX) XXX (XXX) (XXX) XXX/(XXX) (XXX) XXX/(XXX)

INCOME STATEMENT IN HEAD OFFICE BOOK Sales revenue Less: Sales return / sales discount Net sales Less: Cost of Goods Sold: Merchandise inventory opening Add: Net purchases Less: Merchandise send to Branch Total merchandise during the period Add: Merchandise returned by Branch Merchandise available for sale Less: Merchandise inventory ending Cost of goods sold Gross profit/loss Less: Operating expenses Net profit/loss from Head Office Add: Branch Account: Branch net profit/loss Realized allowance for over valuation Adjusted Branch account Adjusted net profit/loss

XXX (XXX) XXX XXX XXX (XXX) XXX XXX XXX (XXX) (XXX) XXX/(XXX) (XXX) XXX/(XXX) XXX/(XXX) XXX XXX/(XXX) XXX/(XXX)

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CONSOLIDATED INCOME STATEMENT Sales revenue Less: Sales return / sales discount Net sales Less: Cost of Goods Sold: Merchandise inventory opening Add: Net purchases Merchandise available for sale Less: Merchandise inventory ending Cost of goods sold Gross profit/loss Less: Operating expenses Net profit/loss

XXX (XXX) XXX XXX XXX XXX (XXX) (XXX) XXX/(XXX) (XXX) XXX/(XXX)

BALANCE SHEET IN BRANCH BOOK Assets

Equities

Current Assets: Cash Accounts receivable Merchandise inventory Total current assets Fixed Assets: Equipment Less: All for depreciation Total fixed assets Total assets

XXX XXX XXX XXX

Liabilities: Accounts payable Salaries payable Total liabilities

XXX XXX XXX

Owner’s Equity: Head Office Add: Branch profit Total owner’s equity

XXX (XXX) XXX XXX

XXX XXX XXX

Total equities

XXX

BALANCE SHEET IN HEAD OFFICE BOOK Assets

Equities

Current Assets: Cash Accounts receivable Merchandise inventory Branch account Total current assets Fixed Assets: Equipment Less: Allowance for depreciation Total fixed assets Total assets


XXX XXX XXX XXX XXX

XXX (XXX) XXX XXX

Liabilities: Accounts payable Salaries payable Total liabilities Owner’s Equity: Capital Add: Branch profit Add: Head Office net profit Add: Allowance for over valuation Total owner’s equity Total equities

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XXX XXX XXX

XXX XXX XXX XXX XXX XXX


CONSOLIDATED BALANCE SHEET Assets

Equities

Current Assets: Cash Accounts receivable Merchandise inventory Total current assets Fixed Assets: Equipment Less: All for depreciation Total fixed assets Total assets

ILLUSTRATION # 3:

XXX XXX XXX XXX

XXX (XXX) XXX XXX

Liabilities: Accounts payable Salaries payable Total liabilities

XXX XXX XXX

Owner’s Equity: Capital Add: Branch profit Add: Head Office profit Total owner’s equity Total equities

XXX XXX XXX XXX XXX

(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.750 purchases from outsiders. REQUIRED a) 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 Less: Cost of Goods Sold: Merchandise inventory opening Add: Net purchases Add: Merchandise received from Head Office Merchandise available for sale Less: Merchandise inventory ending Cost of goods sold Gross profit Less: Operating expenses Net profit

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33,750 3,750 11,250 22,500 37,500 (9,750) (27,750) 6,000 (2,250) 3,750



Head Office Book Income Statement For the Period Ended 31 December 2010 Sales Less: Cost of Goods Sold: Merchandise inventory opening Add: Net purchases Less: Merchandise send to Branch Merchandise available for sale Less: Merchandise inventory ending Cost of goods sold Gross profit Less: Operating expenses Net profit from Head Office operation Add: Branch Account: Branch net profit Realized allowance for over valuation Adjusted Branch account Adjusted net profit

41,250 7,500 30,000 (18,750) 18,750 (6,000) (12,750) 28,500 (6,750) 21,750 3,750 2,626 6,375 28,125

Computation of Realized Allowance for Overvaluation: Particulars Merchandise inventory beginning Add: Merchandise supplied to branch Unadjusted allowance for overvaluation Less: Merchandise inventory ending (Branch) Adjusted allowance for overvaluation

Billed

Cost

3,750 22,500 26,250 (9,000) 17,250

3,375 18,750 22,125 (7,500) 14,625

Allowance for over valuation 375 3,750 4,125 (1,500) 2,625

Computation of Allowance for Overvaluation Rate: Allowance for overvaluation percentage = Allowance for overvaluation Cost price Allowance for overvaluation percentage = 3,750 18,750 Allowance for overvaluation percentage = 20% Computation of Allowance for Overvaluation: Allowance for overvaluation = Allowance for overvaluation = Allowance for overvaluation =


Billed price x Allowance for overvaluation percentage (%) Billed percentage (%) 9,000 x 20% 120% Rs.1,500

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X 100 X 100


Consolidated Income Statement For the Period Ended 31 December 2010 Sales (41,250 + 33,750) Less: Cost of Goods Sold: Merchandise inventory opening (7,500 + 3,375) Add: Net purchases (30,000 + 11,250) Merchandise available for sale Less: Merchandise inventory ending (6,000 + 750 + 7,500) Cost of goods sold Gross profit Less: Operating expenses (6,750 + 2,250) Net profit

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75,000 10,875 41,250 52,125 (14,250) (37,875) 37,125 (9,000) 28,125



PRACTICE QUESTIONS Question # 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 respectively recording 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 the following 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 of merchandise. 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 the month 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 of overvaluation. (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 1st October 2004, Fahad Traders of Karachi opened a Branch at Islamabad by sending goods at a billed price of Rs.405,000. On 15 th 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 31st Dec. 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 overvaluation 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 of Rs.56,250. 3. Multan Branch returned merchandise against shipment in (2) at billed price of Rs.3,750. 4. Multan Branch received another shipment from Head Office at billed price of Rs.75,000. 5. A November 30, Multan Branch valued its inventory at Rs.28,125. The Branch is not authorized 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 from allowance for over-valuation. 3) Set up a T-account for allowance for over-valuation in the ledger of Head Office, post relevant 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 and Branch 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 of Rs.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 of Branch 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 97,500 REQUIRED (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 and Rs.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 31 st 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 the following information into account. 1. Merchandise valued Rs.30,000 were transferred from Hyderabad to Multan Branch under 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 from a Multan Co. 6. For the year 1996, the Hyderabad Branch showed a net loss of Rs.18,750 and the Multan 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 are listed 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 and paid 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 account of 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 had been 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 at the end of Dec. Question # 18: The following home office account with selected entries is taken from the Pindi Branch ledger: HOME OFFICE 1999 1999 March 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 54,000 Dec. 10 Corrected overstated 7,500 bad debts for 1998 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 June 14 Merchandise returns 1,500 June 5 Merchandise shipments June 25 Payment of H/O June 20 Overstatement of accounts payable 7,500 depreciation of 1989 June 30 Payment of Head Office June 24 Collection of Head expense 4,500 Office accounts June 30 Payment of H/O note 6,000 REQUIRED Entries in General Journal of Head Office affecting Branch account.

75,000 21,000 1,800 6,000

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 the merchandise was received by the Head Office after July 31, 1990. 2. The Head Office collected Branch accounts receivable of Rs.75,000 but forgot to intimate the Branch. 3. The Head Office paid Rs.21,000 for Branch expense but the item was not recorded by the Branch. 4. The Head Office paid Rs.11,790 for freight on merchandise but the Branch recorded the 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 on June 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 to inform 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 by the 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 transportation charges of the same. REQUIRED Journal entries in the books of: 1. Seiko (Pvt.) Ltd. Head Office 2. Lahore Branch 3. Faisalabad Branch It 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 the directives 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. REQUIRED Give entries in General Journal of: 4. Head Office 5. Lahore Branch 6. Jhelum Branch Question # 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 Branch ’s 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 1 240,000 Accounts receivable 225,000 Land 180,000 Office equipment 120,000 Allowance for depreciation – Office equipment 7,500 Accounts payable 105,000 Notes 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: Received from Head Office at bill price Purchase from outsiders at cost

1.1.2001 Rs.180,000 60,000 Total 240,000

31.12.2001 Rs.225,000 57,000 282,000

REQUIRED (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 – Merchandise supplies from Store equipment 6,000 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 180,000 207,000 Amount 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 net income 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 cash Rs.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.112,500 of 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 Rupees Accounts 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 72,000 2. Sales on account 3,240,000 3. Purchases on account 765,000 4. Expenses paid 1,116,000 5. Goods received from Head Office billing at cost 1,800,000 6. Cash remittance to Head Office 1,404,000 7. Collection of accounts 3,120,000 8. Bad debts written off 57,000 9. 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 54,000 Allowance 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 the above 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 Company Karachi and its Lahore Branch: Head Office Branch Cash 600,000 270,000 Inventory (opening) 225,000 300,000 Purchases 270,000 90,000 Sales 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 purchases Rs.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 --120,000 Allowance 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 --67,500 Operating 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.1,500 purchases from outsiders. 2. Current year depreciation on equipment of Head Office Rs.3,750 and Branch Rs.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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2 Branch Accounting

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