Theory question 109
Branch AccountsSoy Ltd a company in Aba, has a branch in Owerri to which goods are supplied from the head office at cost plus 25% mark-up. The branch remits to the head office all cash received from customers.
The following transactions took place at the branch during the year ended 31st December, 2022.
Stock 1/1/2022: D 72,200
Goods received from head office: D 240,490
Cash sales: D 110,600
Goods returned from branch to head office at selling price: D 3,140
Cash discount allowed to debtors: D 1,120
Cash received from debtors: D 98,881
Debtors 1/1/2022: D 3,021
Credit sales: D 102,200
Stock 31/12/2022 at selling price: D 40,730
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
Selling price = cost + 25%, so cost = 80% and loading = 20% of selling price. Stock and goods sent taken at selling price.
(a) Branch Stock Account (D, selling price): Dr Balance b/d 72,200; Goods sent to branch 240,490 = 312,690 | Cr Returns to head office 3,140; Cash sales 110,600; Credit sales (branch debtors) 102,200; Stock deficiency 56,020 (balancing figure); Balance c/d 40,730 = 312,690.
(b) Goods Sent to Branch Account (cost): Dr Branch stock – returns (80% × 3,140) 2,512; Head office trading account 189,880 | Cr Branch stock (80% × 240,490) 192,392.
(c) Branch Debtors Account: Dr Balance b/d 3,021; Credit sales 102,200 = 105,221 | Cr Discount allowed 1,120; Cash received 98,881; Balance c/d 5,220.
(d) Branch Adjustment Account (loading 20%): Cr Opening stock loading (20% × 72,200) 14,440; Goods sent (20% × 240,490) 48,098 = 62,538 | Dr Returns (20% × 3,140) 628; Loading on stock deficiency (20% × 56,020) 11,204; Closing stock loading (20% × 40,730) 8,146; Gross profit to profit and loss 42,560 = 62,538.
(The deficiency at cost, 80% × 56,020 = 44,816, is charged to profit and loss.)
Keep the branch stock account at selling price; the adjustment account removes the 20% loading to leave gross profit.