Theory question 107
Branch AccountsOlogun Trading Enterprises supplies goods to its Enugu Branch. The following transactions were recorded with the branch in December 2019 (i) On 1st December 2019, goods costing D 24,000 were invoiced to the branch at cost plus 33⅓% (ii) At the end of the month, the branch returns shows that sales were D 20,000 (iii) Goods invoiced at D 320 were returned to the head office (iv) Closing stock at the branch was D 11,520 at selling price
You are required to prepare in the head office books, the following Account: (a) Goods sent to Branch Account (b) Branch Stock Account (c) Branch Adjustment Account
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Invoice price = cost × 4/3, so goods sent = 32,000 and the loading is 1/4 of invoice price.
(a) Goods Sent to Branch Account (D): Dr Branch stock – returns 320; Branch adjustment – loading (8,000 − 80) 7,920; Head office trading account (cost, 24,000 − 240) 23,760 = 32,000 | Cr Branch stock 32,000.
(b) Branch Stock Account (invoice price): Dr Goods sent to branch 32,000 | Cr Goods sent – returns 320; Sales (cash/debtors) 20,000; Stock deficiency (balancing) 160; Balance c/d 11,520 = 32,000.
(c) Branch Adjustment Account: Cr Goods sent – loading 8,000 | Dr Goods sent – loading on returns 80; Loading on deficiency (1/4 × 160) 40; Closing stock loading (1/4 × 11,520) 2,880; Gross profit to profit and loss 5,000 = 8,000.
(Deficiency at cost, 120, is charged to profit and loss; gross profit check: sales 20,000 − cost 15,000 = 5,000.)
Keep branch stock at invoice price; the adjustment account strips out the 25% loading.