Theory question 106
Branch AccountsA company based in Accra has a branch in Kumasi to which goods are supplied from the head office. All goods are charged out to this branch at cost plus 50% mark-up. The branch remits to the head office all cash received from customers. The following transactions took place at Kumasi branch during the year ended 31st December, 2009:
Stock – 1st January, 2009: GH¢41,400
Goods received from head office at selling price: GH¢171,840
Cash sales: GH¢154,140
Goods returned from branch to head office at selling price: GH¢2,640
Cash received from debtors: GH¢6,120
Goods returned from credit customers to branch: GH¢1,060
Debtors – 1st January, 2009: GH¢2,130
Debtors – 31st December, 2009: GH¢2,100
Stock – 31st December, 2009 at selling price: GH¢50,370
You are required to prepare: (a) Branch Stock Account; (b) Goods sent to Branch Account; (c) Branch Debtors Account; (d) Branch Adjustment Account.
Show the model answer
Loading: mark-up 50% on cost = ⅓ of selling price.
Credit sales (from debtors): 2,100 + 6,120 + 1,060 − 2,130 = 7,150
(a) Branch Stock Account (selling price)
Dr: balance b/d 41,400; goods sent 171,840; returns from customers 1,060 = 214,300
Cr: cash sales 154,140; credit sales 7,150; returns to head office 2,640; balance c/d 50,370 = 214,300
(b) Goods Sent to Branch Account (cost)
Cr: branch stock (171,840 × ⅔) 114,560
Dr: returns from branch (2,640 × ⅔) 1,760; transfer to head office trading account 112,800 = 114,560
(c) Branch Debtors Account
Dr: balance b/d 2,130; credit sales 7,150 = 9,280
Cr: cash 6,120; returns 1,060; balance c/d 2,100 = 9,280
(d) Branch Adjustment Account
Cr: loading on opening stock (41,400 ÷ 3) 13,800; loading on goods sent (171,840 ÷ 3) 57,280 = 71,080
Dr: loading on returns to head office (2,640 ÷ 3) 880; loading on closing stock c/d (50,370 ÷ 3) 16,790; gross profit 53,410 = 71,080
Check: net sales 154,140 + 7,150 − 1,060 = 160,230 × ⅓ = 53,410
Find credit sales from the debtors figures first; it is the missing figure in both the stock and debtors accounts.