Theory question 109
Branch Accounts9. Moyinnet Limited has a branch in Abeokuta and forwarded goods for resale from the head office in Lagos invoicing them at selling price; the mark up was one-third of selling price.
During the year to 31st December, 2001, the following transactions took place at Abeokuta: Goods received from Lagos N360,000; Goods returned to Lagos N3,360; Bad debts N1,192; Cash received from debtors N137,248; Cash discounts given N3,616; Cash sales N201,600; Credit sales N144,000
The following additional information is relevant (1st January, 2001; 31st December, 2001): Stock on hand at selling price N32,160; N42,000. Debtors N13,216; N15,160.
You are required to prepare: (a) Branch Stock Account; (b) Goods Sent to Branch Account; (c) Branch Stock Adjustment Account; (d) Branch Debtors Account.
Show the model answer
(a) Branch stock (at selling price): Dr balance b/f 32,160; goods sent 360,000 = 392,160. Cr returns 3,360; cash sales 201,600; credit sales 144,000; balance c/d 42,000; stock shortage 1,200 (balancing figure) = 392,160.
(b) Goods sent to branch: Cr branch stock 360,000. Dr returns 3,360; branch stock adjustment (loading 1/3 × 356,640) 118,880; head office trading account (cost) 237,760.
(c) Branch stock adjustment: Cr loading on opening stock 10,720; loading on goods sent 118,880 = 129,600. Dr loading on closing stock 14,000; loading on shortage 400; gross profit to profit and loss 115,200 (= 1/3 × sales 345,600). The cost of the shortage, 800, is charged to profit and loss.
(d) Branch debtors: Dr balance b/f 13,216; credit sales 144,000 = 157,216. Cr cash 137,248; discounts 3,616; bad debts 1,192; balance c/d 15,160 = 157,216.
With a mark-up of one-third of selling price, the loading on any figure at selling price is one-third of it.