Ch.10 Branch Accounting

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CHAPTER – 10
BRANCH ACCOUNTING
TABLE OF CONTENTS
1. Preliminary 2. Types of Branches
3. Dependent Branch 4. Distinction between wholesale and retail profit
of a branch
5. Independent Branch 6. Foreign Branch (foreign operations)
7. Practical Problems
1. PRELIMINARY
A business may be split into so many parts and divisions. If the various parts are located under the same roof,
they are known as departments. If the activities are located at different places they are known as branches. A
word ‘Branch’ is interpreted as sub-division or subordinate place of business. Thus, branch has no separate legal
entity.
It is desirable to know the profit or loss of each branch, so that if any branch is not yielding the desired result,
appropriate steps can be taken. It is therefore necessary to maintain accounts in such a manner, so that the profit
or loss made at a branch can be easily ascertained.
2. TYPES OF BRANCHES
TYPES OF BRANCHES
DOMESTIC BRANCH FOREIGN BRANCH
Dependent Independent Integral / Non-Integral /

Branch Branch Integrated Non-Integrated
Foreign Operation Foreign Operation
Cost Price / Wholesale

Selling Price Price
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M1: Debtor’s Method Wholesale Branch Method

M2: Stock & Drs. Method
M3: Final Acc. Method
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3. DEPENDENT BRANCH
3.
1. Salient features: The following are the general salient features of a dependent branch. These branches
are usually goods selling branches.
i. Goods are normally received from the H.O. Branch is not usually authorised to purchase the goods
from the local market.
ii. Selling prices are usually fixed by H.O.
iii. Branch is allowed to sell goods on cash basis. However in exceptional circumstances branch may be
allowed to effect sales on credit terms.
iv. Periodical regular expenses viz. salaries, rent, telephone etc. are paid directly by H.O.
v. Branch has to remit cash sale proceeds and collection from debtors intact to H.O. In other words,
branch is not allowed to utilise the sale proceeds.
vi. Petty cash expenses are incurred by the branch, out of periodical remittance from H.O. This account
may be maintained on simple or imprest system.
vii. Branch does not record its transactions on double entry book-keeping system. Branch keeps records
on a memorandum basis. Branch is therefore dependent on H.O. even for ascertainment of profit.
2. Periodical Reports to H O.: The following usual accounting reports are periodically rendered by a branch
to H.O.
i. Statement showing ‘Goods received from H.O.
ii. Statement showing ‘Goods’ returned to H.O.
iii. Sales Report
iv. Petty cash abstract
v. Statement showing periodical remittance to H.O.
vi. Statement showing collection from debtors.
vii. Stock Statement
viii. Outstanding List of Sundry Debtors
On the basis of the figures from the above statements, Branch transactions are recorded in the books of
H.O.
3. Ascertainment of Profit:
i. Debtors System:
Under this system transactions between H.O. and Branch are only recorded.
Branch is treated as a debtors (Party) and therefore Branch account is debited for -
 Opening Assets
 Goods sent to Branch
 Payment of Branch expenses
 Remittances to Branch
 Closing liabilities / provisions
Branch account is credited for -
 Goods returned by Branch
 Remittance by Branch
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 Closing Assets
 Opening Liabilities
The difference in Branch A/c is a Profit or Loss.
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Accounting Entries:
SR.
TRANSACTIONS PARTICULARS ENTRY
NO.
1. Goods sent to Branch IP Branch A/c. ..... Dr.
To Goods sent to Branch A/c.
2. Loading on goods sent to IP-CP Goods sent to Branch A/c. ..... Dr.
Branch To Branch A/c.
(if any)
3. Goods returned by branch IP Goods sent to Branch A/c. ..... Dr.
To Branch A/c.
4. Loading on goods returned IP-CP Branch A/c. ..... Dr.
by branch To Goods sent to Branch A/c.
(if any)
5. Payment towards periodical Actual Branch A/c. ..... Dr.
expenses To Cash/Bank A/c.
6. Remittance from branch Cash sales plus Collection Cash/Bank A/c. ..... Dr.
from debtors To Branch A/c.
7. Remittance to branch Advance for expenses Branch A/c. ..... Dr.
To Cash/Bank A/c.
8. Branch closing Assets Stock at IP, Others at Branch Stock A/c. ..... Dr.
actual Branch Cash A/c. ...... Dr.
Branch Debtors A/c. ..... Dr.
To Branch A/c.
9. Loading on closing branch IP-CP Branch A/c. ..... Dr.
stock (if any) To Stock Reserve A/c.
10. Transfer of Profit / Loss Profit Branch A/c ..... Dr.
To Profit and Loss A/c.
Loss Profit and Loss A/c. ..... Dr.
To Branch A/c.
11. Transfer of balance in Actual Goods sent to Branch A/c. ..... Dr.
Goods sent to Branch A/c. To Purchase/Trading A/c.
NOTES:
1. Abbreviations: IP = Invoice Price, CP = Cost Price
2. Goods returned by branch and loading thereon may alternatively be accounted for through ‘Goods
returned by branch A/c‘.
In this case balance in Goods returned by branch at the end of the year is transferred to ‘Goods sent to
Branch A/c.'
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PROFORMA OF BRANCH ACCOUNT
for the period from . . . . . to . . . . .
Amount Amount
Rs. Rs.
To Opening Balance b/d By Stock Reserve
Stock ........ (Loading on Opening stock) ..........
Debtors ........ By Opening Liabilities ..........
Cash ........ By Bank-remittance from
Asset ........ .......... Branch ..........
To Goods sent to branch .......... By Goods sent to branch
(Loading) ..........
To Goods sent to branch By Goods sent to branch
(Loading on returns) .......... (Returns) ..........
To Bank – Rent ........ By Closing Balance c/d.
Salaries ........ Stock ........
Expenses ........ .......... Debtors ........
To Bank-remittance to branch .......... Cash ........
To Stock Reserve Asset ........ ..........
(Loading on closing stock) ..........
To Closing Liabilities ..........
To Profit & Loss Account
(Transfer of Profit) ..........
Total .......... Total ..........
NOTES:
1. Under this system petty cash expenses incurred by the branch are not directly accounted for.
However effect in the account is recorded for the same amount, as
Petty cash expenses = Opening Cash
Add: Remittance to Branch
Less: Closing Cash
2. Credit sales, Sales returns, Discount allowed, Bad debts etc. are not accounted directly. However,
effect in the account is recorded for the same amount.
3. If Branch is allowed to utilise collection proceeds for expenses, remittance from branch to H. O. to
that extent will be less and indirectly effect of expenses will be recorded.
4. Under this system, Gross Profit is not ascertained.
5. Some typical items –
The following items are to be ignored while preparing Branch Account under this method:
(i) Credit sales; Sales returns; Bad debts; Discount allowed; etc.,
(ii) Depreciation of fixed assets,
(iii) Petty cash expenses paid by the branch,
(iv) Shortage or surplus of stock, and
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(v) Profit or loss arising out of sale of a fixed asset.

The reasons are explained below:

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(i) Credit sales and other related matters (such as, sales returns, bad debts, discount allowed,
etc.): The Branch Account is debited with the opening balance of debtors and credited with
cash received from debtors and closing balance of debtors. Credit sale, sales returns, bad debts,
discount allowed, etc., are related to Debtors Account. For calculating closing debtors balance
all these items have already been taken into consideration. Therefore, these items are to be
ignored for the preparation of Branch Account.
(ii) Depreciation on Fixed Assets: The Branch Account is debited with the opening balance of fixed
assets and credited with the closing balances of fixed assets after deducting depreciation.
Depreciation is automatically accounted for and it should not be shown in the Branch Account
separately.
(iii) Petty Cash Expenses paid by the Branch: The Branch Account is debited with the opening
balance of petty cash and the amount of petty cash sent by the head office and is credited with
the closing petty cash. For calculating closing petty cash, all expenses paid by the branch are
taken into consideration. Therefore, it should be ignored for preparation of Branch Account.
(iv) Shortage or Surplus of Stock: The Branch Account is debited with the opening balance of
branch stock and credited with its closing balance. At the time of calculating closing balance of
branch stock, shortage / surplus is taken into consideration. Therefore, it should be ignored
for preparation of Branch Account.
(v) Profit/Loss on Sale of a Fixed Asset: If an asset is sold for cash, the Branch Account is credited
with the remittances. If it is sold on credit, the Branch Account will be credited with the Debtor
for sale of asset. The profit / loss on sale of asset is already included in the remittance/debtors
figure. Therefore, at the time of preparing Branch Account, profit / loss on sale of asset should
not be shown separately.
(vi) Purchases by Branch: The Branch Account is debited with the amount of remittance from head
office. Therefore, any direct purchase by branch should not be shown separately in the Branch
Account.
ii. Stock and Debtors System:

This method can be effectively used for controlling branch stocks, when the goods are invoiced to
the branch at selling price, which branch is not authorised to vary. In addition to the accounts
relating to branch assets, the following accounts are maintained under this system:
a. Branch Stock A/c. (at Invoice Price)
b. Branch Debtors A/c.
c. Branch Stock Adjustment A/c. Or Branch Adjustment A/c. (Loading A/c.)
d. Branch Expenses A/c.
e. Branch Profit and Loss A/c.
This method can also be used when goods are invoiced to the branch at cost price or inflated cost
price.
Accounting Entries:
SR.
NO.
1. Goods sent to Branch IP Branch Stock A/c. .... Dr.
To Goods sent to Branch A/c.
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2. Loading on Goods sent to IP-Cost Goods sent to Branch A/c. .... Dr.
branch To Branch Adjustment A/c.

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SR.
NO.
3. Goods returned by Branch IP Goods sent to Branch A/c. .... Dr.
To Branch Stock A/c.
4. Loading on goods returned by IP-Cost Branch Adjustment A/c. .... Dr.
Branch To Goods sent to Branch A/c.
5. Payment of periodical expenses Actual Branch expenses A/c. .... Dr.
To Cash/Bank A/c.
6. Remittance to Branch for Advance Branch Cash A/c. .... Dr.
expenses To Cash/Bank A/c.
7. Petty Cash Expenses Actual Branch expenses A/c. .... Dr.
To Branch Cash A/c.
8. Cash Sales SP Bank A/c. (Note 3) .... Dr.
9. Credit Sales SP Branch Debtors A/c. .... Dr.
10. Collection from Debtors Actual Bank A/c. (Note 3) .... Dr.
To Branch Debtors A/c.
11. Returns from Debtors SP Branch Stock A/c. .... Dr.
To Branch Debtors A/c.
12. Discount allowed, allowance Actual Branch expenses A/c. .... Dr.
given etc. To Branch Debtors A/c.
13. Normal loss/shortage IP Branch Adjustment A/c. .... Dr.
14. Abnormal loss/shortage IP Abnormal loss A/c. .... Dr.
Loading IP-CP Branch Adjustment A/c. .... Dr.
To Abnormal Loss A/c.
Sale/insurance claim Actual Bank A/c. .... Dr.
Transfer of net loss Actual General Profit and Loss A/c. .... Dr.
Branch P & L A/c. .... Dr.
15. Transfer of gross profit ——— Branch Adjustment A/c. .... Dr.
To Branch Profit and Loss A/c.
16. Transfer of expenses ——— Branch Profit and Loss A/c. .... Dr.
To Branch Expenses A/c.
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17. Transfer of Profit/Loss Profit Branch Profit and Loss A/c. .... Dr.
To General Profit and Loss A/c

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SR.
NO.
Loss General Profit and Loss A/c. .... Dr.
To Branch Profit and Loss A/c.
18. Transfer of Balance in Goods Actual Goods sent to Branch A/c. .... Dr.
sent to branch A/c. To Purchase/Trading A/c.
Notes:
1. Abbreviations: IP = Invoice Price, CP = Cost Price SP = Selling Price
2. Under this system, entry for closing stock is not required as Branch Stock A/c reflects a balance
equivalent to stock at the end at IP. Similarly, balance in Branch Adjustment A/c is to be
maintained equivalent to loading on closing stock.
3. If the cash sales proceeds and collection from debtors are not remitted intact to H. O. it is
necessary to open "Branch Cash A/c".
4. If the goods are sold at higher price than IP, it is necessary to transfer extra loading to Branch
Adjustment A/c. (Extra loading = Selling Price - Invoice Price).
5. Some Typical items –
Normal loss: No treatment is required even if it is given specifically in the examination
problem. However, for calculating Branch Closing Stock (when it is not given) normal loss is
credited to Branch Stock Account at invoice price. Normal Loss Account is closed by debiting
to Branch Adjustment Account.
Pilferage/Theft: In retail trade, pilferage or shoplifting is very common and this has come to
be regarded as a normal business loss. The loading of such goods is charged to Branch
Adjustment Account and cost is charged to Branch Profit and Loss Account.
Shortage in stock: Shortage in stock may be due to spoilage, leakage, sales in small quantity,
etc. Loading on shortage in stock should be charged to Branch Adjustment Account and cost
of such goods should be charged to Branch Profit and Loss Account.
Surplus in stock: Loading on surplus in stock is credited to Branch Adjustment Account and
cost of such goods is credited to Branch Profit and Loss Account.
Loss by fire/loss-in-transit: Loading on goods lost by fire/in-transit should be charged to
Branch Adjustment Account and the cost of such goods should be charged to General Profit
and Loss Account.
The students should note that the branch profit should not be affected by the abnormal items.
Some authors prefer to charge the cost of the goods lost by fire to Branch Profit and Loss
Account. But, in our opinion, this practice should not be encouraged because heavy loss due to
fire by converting branch profit into branch loss may mislead the management at the time of
decision-making.
Inter-branch transfer of goods: Sometimes goods may be transferred by one branch to
another branch. At the time of making entry for transferring branch, it should be treated as a
transfer to head office (though the goods is actually transferred to a particular branch).
Similarly, for receiving branch it will be treated as received from head office.
For the transferring branch, the entry will be:
Goods Sent to Branch Account Dr. [Invoice Price]
To Branch Stock Account
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For the receiving branch, the entry will be:

Branch Stock Account Dr. [Invoice Price]
To Goods Sent to Branch Account

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6. Sale of Goods Above / Below Invoice Price: Sometimes goods may be sold by the branch
below or above the invoice price as a matter of policy, for example, cash sales at invoice price
but credit sales at 10% above invoice price. In such a situation, the Branch Stock Account does
not balance. For adjusting excess/short amount realised over the invoice price, the following
entries are passed:
(i) When goods are sold above invoice price
Branch Stock Account Dr. [Difference between actual selling price
To Branch Adjustment Account and invoice price]
(ii) When goods are sold below invoice price
Branch Adjustment Account Dr. [Difference between invoice price and
To Branch Stock Account actual selling price]
PROFORMA OF BRANCH ACCOUNTS

1. BRANCH STOCK ACCOUNT:
Amount Amount
Rs. Rs.
To Balance B/d. ........ By Bank / Cash Sales ........
To Goods sent to Branch ........ By Branch Debtors sales ........
To Branch Debtors – Returns ........ By Goods sent to Branch-Returns ........
To Branch Adjustment A/c. ........ By Branch Adjustment A/c. ........
extra loading Normal Loss
By Abnormal Loss A/c.
By Balance C/d.
Total ........ Total ........
2. BRANCH DEBTORS ACCOUNT:

Amount Amount
Rs. Rs.
To Balance B/d ........ By Bank Collection ........
To Branch Stock - Sales ........ By Branch Stock – Returns ........
By Branch expenses -
Discount ........
Allowance etc. ........
By Balance B/d. ........
Total ........ Total ........
3. GOODS SENT TO BRANCH ACCOUNT:

Amount Amount
Rs. Rs.
To Branch Adjustment ........ By Branch Stock ........
To Branch Stock – Returns ........ By Branch Adjustment
- Loading on returns ........
To Purchases / Trading ........
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(transfer)
Total ........ Total ........

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4. BRANCH ADJUSTMENT ACCOUNT:
Amount Amount
Rs. Rs.
To Goods sent to Branch By Balance B/d. ........
- Loading on returns ........ By Goods sent to Branch –
To Branch Stock – Loading on goods sent ........
Normal Loss ........ By Branch Stock A/c –
To Abnormal Loss ........ extra loading ........
To Branch Profit and
Loss A/c. ........
To Balance c/d. ........
Total ........ Total ........
5. BRANCH CASH / PETTY CASH ACCOUNT:
Amount Amount
Rs. Rs.
To Balance B/d ........ By Branch Expenses ........
To Bank ........ By Balance C/d ........
Total ........ Total ........
6. BRANCH EXPENSES ACCOUNT:

Amount Amount
Rs. Rs.
To Bank expenses ........ By Branch Profit Loss A/c. ........
To Branch cash ........
To Branch Debtors
- Discount ........
- Allowance etc. ........ ........
Total ........ Total ........
7. BRANCH PROFIT AND LOSS ACCOUNT:

Amount Amount
Rs. Rs.
To Branch Expenses ........ By Branch Adjustments ........
To General Profit and Loss - Goods profit
- Net Profit ........
Total ........ Total ........
iii. Trading and Profit and Loss A/c. Method:

From the trial balance relating to branch transactions profit can also be ascertained as per this usual
method.
10. 9

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4. DISTINCTION BETWEEN WHOLESALE AND RETAIL PROFIT OF A BRANCH

4.
The methods dealt with makes no distinction between profit due to retailing and due to wholesaling. Even though
there would have been no branch, H. O. would have earned wholesale profit by selling the goods through
wholesaler. The real profit earned by the branch is therefore a retail profit.
Thus total profit may be segregated into -
i. Wholesale profit (Wholesale price - Cost Price)
ii. Retail profit (Retail price - Wholesale price)
For knowing the true profit, at retail branches, the practice adopted sometimes is to charge the branch with
wholesale price and then ascertain the branch profit. H.O. Trading A/c in this case is credited with wholesale
price. It must be remembered that the closing stock at the Branch will be valued at wholesale price. Therefore,
the Head Office must create a proper reserve for unrealised profit by debiting its own Profit and Loss
Account to show branch stock at cost in the Balance Sheet.
The students should note the following important points:
1. Branch Trading Account is debited with the opening stock (if any) at invoice price (wholesale price).
2. Branch Trading Account is also debited with goods sent to branch (net) at invoice price (wholesale price).
3. Branch Trading Account is credited with the retail price of goods sold.
4. Branch Trading Account is also credited with c1osin£ stock at branch at invoice price (wholesale price)
5. The Head Office Trading Account will be debited by opening stock (if any, at cost), goods purchased etc.,
and will be credited by direct sales (generally at wholesale price) and goods sent to branch (net) at invoice
prices (wholesale price). The closing stock (at cost) of head office is also credited to Head Office Trading
Account.
6. If there is any closing stock lying at branch, a Stock Reserve Account is opened by debiting Profit and Loss
Account (head office) and crediting Stock Reserve Account. The amount of stock reserve is the difference
between wholesale price and cost price of head office.
7. If there is any opening stock lying at branch, Stock Reserve Account is debited and head office profit and
loss is credited with the loading (i.e. wholesale price of opening less cost price of such goods).
5. INDEPENDENT BRANCH
5.
i. Salient features:
a. In addition to supply of goods from Head Office, Branch is authorised to purchase goods in the local
market at competitive rates.
b. Goods are sold on cash as well as on credit terms
c. Branch is authorised to vary selling price in accordance with the guidelines issued by Head Office.
d. Branch need not has to depend on H. O. for payment of expenses Branch makes payment out of its
own resources.
e. Branch need not remit the proceeds intact to H. O. surplus funds with the branch are periodically
transferred to H. O. and remittances may also be received from H. O. as and when required.
f. Branch maintains accounts on double entry book keeping principles in separate set of books of
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account. Branch extracts its trial balance and prepare Trading and Profit and Loss Account. The H.
O. consolidate the branch accounts for preparing Trading and Profit and Loss Account and Balance
Sheet of a concern as whole.

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ii. Reconciliation of Head Office Account and Branch Account: The H. O. maintains in its books ‘Branch
Account’ and similarly Branch maintains in its books H. O. Account. The account is maintained more or less
like other personal account and therefore balance in Branch A/c shows how much money the H. O. has
invested at the branch.
The following are the usual transactions entered into in between H. O. and Branch -
1. Goods sent by H. O. to Branch
2. Goods returned by Branch to H. O.
3. Remittance by H. O. to Branch
4. Remittance by Branch to H. O.
5. Expenses incurred by H. O. on behalf of branch
6. Expenses incurred by Branch on behalf of H. O.
As all the above transactions are entered in the books of H. O. as well as Branch, balance in ‘Branch Account’
as reflected by H. O. books and balance in H. O. Account as reflected by Branch books must tally with each
other with opposite side balance.
The following special points may be noted -
a. Accounting of Fixed Assets: Usually Fixed Asset accounts of the branch are kept in the H.O. books.
In this case following entries are passed:
Sr.No. Transaction H. O. Books Branch Books
1. Purchase of fixed assets by Branch Fixed Asset A/c....Dr. No entry
H.O. To Bank A/c.
By Branch Branch Fixed Asset A/c....Dr. H.O. A/c..... Dr.
To Branch A/c. To Bank A/c.
2. Depreciation on Fixed Branch A/c........ Dr. Depreciation A/c ...Dr.
Assets To Branch Fixed Assets A/c. To H.O. A/c.
Note: No special accounting treatment is necessary if fixed asset accounts are maintained by the
branch itself. In this case HO makes remittance for expenditure and Branch purchases Assets out of
money received.
b. Common Expenses: H.O. always incurs common expenses for branches or does some work on
behalf of branch and it is therefore usual to charge the branch for services rendered.
Accounting Entries:
H.O. Books:
1. Respective Expenses A/c / Common Expenses A/c. ....... Dr.
To Cash / Bank A/c.
2. Sharing of Expenses:
Respective Branch A/c. ....... Dr.
To Respective Expenses A/c / Common Expenses A/c.
Branch Books:
Respective Expenses A/c H.O. Expenses A/c. ....... Dr.
To H.O. A/c.
c. Reconciliation of Transit Items: Normally the balance shown in branch Account (H.O. Books) and
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in H.O. Account (Branch books) should be the same. One will be debit and other will be credit. But
on a particular date there may be difference in the balances shown by the two accounts on account
of -
i. Remittance in transit

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ii. Goods in transit
On the date of closing of the accounts the items in transit have to be brought into books. Adjustment
entry therefore is necessary either in the books of H.O. or in the books of branch.
H. O. Books: Goods in Transit/Cash in Transit A/c ........Dr.
To Branch A/c. OR
Branch Books: Goods in Transit/Cash in Transit A/c..... Dr.
To H.O. Account
d. Inter-branch transactions: Inter Branch transaction are usually routed through H.O. The
transactions are recorded on usual basis.
iii. Ascertainment of profit and Incorporation of Branch Accounts: The following steps may be followed
in this connection:
Sr.
Transactions H. O. Books Branch Books
No.
1. Annual/year ending - Usual Entries for closing
Adjustment viz. stock, adjustments
prepaid expenses,
outstanding expenses
etc.
2. Reconciliation of H.O. Reconcile balance in Branch A/c Reconcile balance in H.O. A/c.
and Branch A/c with H.O. A/c. (Branch books) and with Branch A/c (H.O. books)
pass adjustment entries and pass adjustment entries
3. Trial Balance - Prepare Trial Balance duly
incorporating all adjustments
4. Ascertainment of Profit - Prepare Trading and Profit and
Loss A/c. and ascertain net
profit.
5. Incorporation / Transfer Branch A/c....Dr. Profit and Loss A/c....Dr.
of profit To Profit and Loss A/c. To H.O. A/c.
6. Incorporation / Transfer Respective Asset A/c....Dr. H.O. A/c.....Dr.
of assets To Branch A/c. To Respective Asset A/c.
7. Incorporation / Transfer Branch A/c.....Dr. Respective Liabilities A/c.....Dr.
of liabilities To Respective liabilities A/c. To H.O. A/c.
NOTE:
1. After transfer / incorporation of profit, assets and liabilities, balance in ‘Branch A/c.’ (H.O. Books)
and balance in H. O. A/c. (Branch books) must be nil.
2. Alternatively H.O. may prepare Trading and Profit and Loss Account of the branch by incorporating-
i. Trading A/c. debit side items
ii. Trading A/c. credit side items
iii. Profit and Loss A/c. debit side items
iv. Profit and Loss A/c. credit side items
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Asset and liabilities accounts are also incorporated in the books of H.O.
3. At the beginning of the next year branch asset and liabilities accounts are transferred back by H.O.
to branch.

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6. FOREIGN BRANCH (FOREIGN OPERATIONS)
The accounting in respect of Foreign Branch is distinct due to the fact that the financial information in respect of
the Foreign Branch is in Foreign Currency i.e. Currency other than the Reporting Currency. All this financial
information in the foreign currency has to be first converted in Reporting Currency i.e. the currency used
inpresenting the Financial Statements. The problem faced while converting is that the rate to be applied while
conversion of Foreign Currency into Reporting Currency as the Exchange Rates are constantly changing.
The Institute of Chartered Accountants of India (ICAI) has given the detailed guidelines in this regard by issuing
the Accounting Standard (AS) 11 (Revised 2003) titled as ‘The Effects of Changes in Foreign Exchange Rates’.
The guidelines given in this Standard is to be used for the translating the financial statements of foreign
operations.
The AS has divided the Foreign Branches (referred to as Foreign Operations) into two types, namely:
i. Integral Foreign Operations: This is defined as the Foreign Operation the activities of which are integral
part of those of the Reporting Enterprise.
ii. Non Integral Foreign Operation: This is defined as the Foreign Operation that is not an Integral Foreign
Operation.
Following are some of the relevant definitions in AS 11:

 Monetary items: are money held and Assets and Liabilities to be received or paid in fixed or determinable
amount of money.
 Non Monetary items: are Assets and Liabilities other than Monetary items.
 Exchange Rate: is the ratio for exchange of two currencies.
The following is the procedure to be applied for conversion:

a. Recognition of Exchange Differences:
Integral Operations Non Integral Operations
The Exchange rate differences on settlement of The Exchange rate differences on monetary items
monetary items be recognised as income or be accumulated in Foreign Currency Translation
expense in the period in which they arise. Reserve in enterprise’s financial statements. On
disposal of net investment income or expense
should be recognised in year of disposal. The
difference is not recognised as income or expense
of the period because changes in Exchange Rates
have little or no direct effect on present and
future cash flows of the reporting enterprise.
b. Exchange Rates applicable for conversion on Balance Sheet Date:

Foreign Currency Monetary items should be Assets and Liabilities, both Monetary and Non-
converted using the Closing Rate Monetary, be converted at Closing Rate.
Examples: Cash, Receivables (Debtors), Payables
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(Creditors), etc.
Foreign Currency Non-Monetary items which are Incomes and Expenses be converted at Exchange
carried in terms of historical cost should be Rate on date of transaction. For practical purpose

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converted using the Exchange Rate at the date of the rate that approximates such rate i.e. Average
transaction. Rate is used.
Examples: Fixed Assets, Inventories, Investments
in Equity Shares, etc.
Contingent Liability at the Balance Sheet date is be Contingent Liability is to be converted using the
converted using Closing Rate. Closing Rate.
c. Disposal of Branch or Operations:

On Disposal normal Profit or Loss should be On Disposal the cumulative amount of exchange
accounted for. No special accounting treatment differences which have been deferred and which
required. relate to the operation disposed, should be
recognised as income or expense in the same
period in which gain or loss on disposal is
recognised.
d. Change in classification of Foreign Branch / Operation: On the principle of Consistency, once

classification is made it should be continued on same basis. However, if there is a change in classification
of Foreign Operation, the translation procedures applicable to the revised classification should be applied
from date of change in the classification. Thus any change in classification is to be made with
prospective effect.
Hence if an Integral Operation is reclassified as Non Integral Operation, exchange rate differences arising
on conversion of non-monetary assets at the date of reclassification are accumulated in Foreign Currency
Translation Reserve.
On the other hand when Non Integral Operation is reclassified as an Integral Operation, the translated
amount for non-monetary items at the date of change are treated as historical cost for those items in the
period of change and subsequent periods. Exchange differences which have been deferred are not
recognised as income or expense untill the disposal of the operation.
10. 14

CH.
10
7. PRACTICAL PROBLEMS
IN-CLASSROOM PROBLEMS PRACTISE PROBLEMS SELF-ASSESSMENT PROBLEMS

Essentials Growth Maturity
Q1. Dependent Branch – M1 & M3 - CP REG. PAGE NO.

Buckingham Bros, Bombay have a branch at Nagpur. They send goods at cost to their branch at Nagpur.
However, direct purchases are also made by the branch for which payments are made at head office. All
the daily collections are transferred from the branch to the head office.
From the following, prepare Nagpur branch account in the books of head office by Debtors method:
PARTICULARS AMOUNT PARTICULARS AMOUNT
Opening Balance (1-1-2019) Bad Debts 1,000
Imprest Cash 2,000 Discount to Customers 2,000
Sundry Debtors Stock: 25,000 Remittances to H.O. 1,65,000
Transferred from H.O. 24,000 (Recd. by H.O.)
Direct Purchases 16,000 Remittances to H.O. 5,000
Cash Sales 45,000 (not recd. by H.O. so far)
Credit Sales 1,30,000 Branch Exp. directly paid by H.O. 30,000
Direct Purchases 45,000 Closing Balance (31-12-2019)
Returns from Customers 3,000 -Stock:
Goods sent to branch from H.O. 60,000 Direct Purchase 10,000
Transfer from H.O. for Petty 4,000 Transfer from H.O. 15,000
Cash expenses -Debtors ?
-Imprest Cash ?
-Petty Cash expenses 4,000
Consider the above data and also prepare Nagpur Branch’s Trading and Profit & Loss Account in the books
of Head Office.
Q2. Dependent Branch – M1,M2 & M3 - CP REG. PAGE NO.

The Bombay Traders invoiced goods to its Delhi branch at cost. Head Office paid all the branch expenses
from its bank account, except petty cash expenses which were met by the Branch. All the cash collected by
the branch was banked on the same day to the credit of the Head Office. The following is a summary of the
transactions entered into at the branch during the year ended December 31, 2019
PARTICULARS AMOUNT PARTICULARS AMOUNT
Balances as on 1.1.2019:
-Stock 7,000 Bad Debts 600
-Debtors 12,600 Goods returned by customers 500
-Petty Cash 200 Salaries & Wages 6,200
Goods sent from H.O. 26,000 Rent & Rates 1,200
Goods returned to H.O. 1,000 Sundry Expenses 800
Cash Sales 17,500 Cash received from Sundry Debtors 28,500
Credit Sales 28,400 Balances as on 31.12.2019:
Allowances to customers 200 -Stock 6,500
Discount to customers 1,400 -Debtors 9,800
-Petty Cash 100
Prepare:
(a) Branch Account (Debtors Method),
10.15
(b) Branch Stock Account, Branch Profit & Loss Account, Branch Debtors and Branch Expenses Account
by adopting the Stock and Debtors Method and
(c) Branch Trading and Profit & Loss Account to prove the results as disclosed by the Branch Account.

CH.
10
Q3. Dependent Branch – M2 - IP REG. PAGE NO.
Harrison of Chennai has a branch at New Delhi to which goods are sent @ 20% above cost. The branch
makes both cash and credit sales. Branch expenses are met partly from H.O. and partly by the branch. The
statement of expenses incurred by the branch every month is sent to head office for recording.
Following further details are given for the year ended 31st December, 2019:
Cost of goods sent to Branch at cost 2,00,000

Goods received by Branch till 31-12-2019 at invoice price 2,20,000
Credit Sales for the year @ invoice price 1,65,000
Cash Sales for the year @ invoice price 59,000
Cash Remitted to head office 2,22,500
Expenses paid by H.O. 12,000
Bad Debts written of 750
Balances As On 1-1-2019 Rs. 31-12-2019 Rs.
Stock 25,000 28,000
(Cost) (Invoice Price)
Debtors 32,750 26,000
Cash in Hand 5,000 2,500
Show necessary ledger accounts in the books of the head office and determine the Profit and Loss of the
Branch for the year ended 31st December, 2019.
Also prepare Branch Account following Debtor’s method.

Following is the information of the Jammu branch of Best New Delhi for the year ending 31st March, 2020
from the following:
(1) Goods are invoiced to the branch at cost plus 20%.
(2) The sale price is cost plus 50%.
(3) Other information:
Rs.
Stock as on 01.04.2019 (Invoice Price) 2, 20,000
Goods sent during the year (Invoice Price) 11,00,000
Sales during the year 12,00,000
Expenses incurred at the branch 45,000
Ascertain: (i) The profit earned by the branch during the year and (ii) Branch stock reserve in respect of
unrealized profit.

Sell Well who carried on a retail business opened a branch X on January 1st, 2020 where all sales were on
credit basis. All goods required by the branch were supplied from the Head Office and were invoiced to the
branch at 10% above cost. The following were the transactions
Jan. 2020 Feb. 2020 Mar. 2020
Goods sent to Branch (Purchase Price) 40,000 50,000 60,000
Sales as shown by the branch monthly report 38,000 42,000 55,000
Cash received from Debtors & remitted to H.O. 20,000 51,000 35,000
Returns to H.O. (Invoice price to Branch) 1,200 600 2,400
The stock of goods held by the branch on March 31, 2020 amounted to Rs. 53,400 at invoice to branch.
Record these transactions in the Head Office books, showing balances as on 31st March, 2020 and the
branch gross profit for the three months ended on that date. All workings should form part of your solution.
10. 16
Hindustan Industries Mumbai has a branch in Cochin to which office goods are invoiced at cost plus 25%.
The branch sells both for cash and on credit. Branch Expenses are paid direct from head office, and the
Branch has to remit all cash received into the Head Office Bank Account.

CH.
10
From the following details, relating to calendar year 2020, prepare the accounts in the Head Office Ledger
and ascertain the Branch Profit. Branch does not maintain any books of account, but sends weekly returns
to the Head Office:
Rs.
Goods received from Head Office at invoice price 6,00,000
Returns to Head Office at invoice price 12,000
Stock at Cochin as on 1st Jan., 2020 60,000
Sales in the year – Cash 2,00,000
Credit 3,60,000
Sundry Debtors at Cochin as on 1st Jan. 2020 72,000
Cash received from Debtors 3,20,000
Discount allowed to Debtors 6,000
Bad debts in the year 4,000
Sales returns at Cochin Branch 8,000
Rent, Rates, Taxes at Branch 18,000
Salaries, Wages, Bonus at Branch 60,000
Office Expenses 6,000
Stock at Branch on 31st Dec. 2020 at invoice price 1,20,000
Prepare Branch accounts in books of head office by Stock and debtors method.
Q7. Dependent Branch – M1 & M3 - IP REG. PAGE NO.

Arnold of Delhi, trades in Ghee and Oil. It has a branch at Lucknow. He dispatches 25 tins of Oil @ Rs. 1,000
per tin and 15 tins of Ghee @ Rs. 1,500 per tin on 1st of every month. The branch incurs some expenditure
which is met out of its collections; this is in addition to expenditure directly paid by Head Office.
Following are the other details:
DELHI LUCKNOW
Purchases Ghee 14,75,000 -
Oil 29,32,000 -
Direct expenses 3,83,275 -
Expenses paid by H.O. - 14,250
Sales Ghee 18,46,350 3,42,750
Oil 27,41,250 3,15,730
Collection during the year (including Cash Sales) - 6,47,330
Remittance by Branch to Head Office - 6,13,250
DELHI LUCKNOW
Balance as on: 1-1-2020 31-12-2020 1-1-2020 31-12-2020
Stock : Ghee 1,50,000 3,12,500 17,000 13,250
Oil 3,50,000 4,17,250 27,000 44,750
Debtors 7,32,750 – 75,750 ?
Cash on Hand 70,520 55,250 7,540 12,350
Furniture & Fittings 21,500 19,350 6,250 5,625
Plant/Machinery 3,07,250 7,73,500 - -
Addition to Plant/Machinery on 1-1-2020 Rs. 6,02,750.Rate of Depreciation: Furniture / Fittings @ 10%
and Plant / Machinery @ 15% (already adjusted in the above figures).The Branch Manager is entitled to
10% commission after charging such commission whereas, the General Manager is entitled to 10%
commission on overall company profits after charging such commission. General Manager is also entitled
to a salary of Rs. 2,000 p.m. General expenses incurred by H.O. Rs. 24,000.
Prepare Branch Account in the head office books and also prepare the Arnold’s Trading and Profit and Loss
10.17
A/c (excluding branch transactions).

CH.
10
Q8. Dependent Branch – M2 - WP REG. PAGE NO.
M/s Rahul operates a number of retail outlets to which goods are invoiced at wholesale price which is cost
plus 25%. These outlets sell the goods at the retail price which is wholesale price plus 20%. Following is
the information regarding one of the outlets for the year ended 31.3.2020:
Rs.
Stock at the outlet 1.4.2019 30,000
Goods invoiced to the outlet during the year 3,24,000
Gross profit made by the outlet 60,000
Goods lost by fire ?
Expenses of the outlet for the year 20,000
Stock at the outlet 31.3.2020 36,000
You are required to prepare the following accounts in the books of Rahul Limited for the year ended
31.3.2020:
(a) Outlet Stock Account.
(b) Outlet Profit & Loss Account.
(c) Stock Reserve Account.

Widespread invoices goods to its branch at cost plus 20%. The branch sells goods for cash as well as on
credit. The branch meets its expenses out of cash collected from its debtors and cash sales and remits the
balance of cash to head office after withholding Rs. 10,000 necessary for meeting immediate requirements
of cash. On 31st March, 2019 the assets at the branch were as follows:
Rs. (‘000)
Cash in Hand 10
Trade Debtors 384
Stock, at Invoice Price 1,080
Furniture and Fittings 500
During the accounting year ended 31st March, 2020 the invoice price of goods dispatched by the head office
to the branch amounted to Rs. 1 core 32 lakhs. Out of the goods received by it, the branch sent back to head
office goods invoiced at Rs. 72,000. Other transactions at the branch during the year were as follows:
Rs. (‘000)
Cash Sales 9,700
Credit Sales 3,140
Cash collected by Branch from Credit Customers 2,842
Cash Discount allowed to Debtors 58
Returns by Customers 102
Bad Debts written off 37
Expenses paid by Branch 842
On 1st January, 2020 the branch purchased new furniture for Rs. 1 lakh for which payment was made by
head office through a cheque. On 31st March, 2020 branch expenses amounting to Rs. 6,000 were
outstanding and cash in hand was again Rs. 10,000. Furniture is subject to depreciation @ 16% per annum
on diminishing balance method. Prepare Branch Account in the books of head office for the year ended
31st March, 2020.
Q10. Dependent Branch (RTP M18) REG. PAGE NO.

Alpha Ltd. has a retail shop under the supervision of a manager. The ratio of gross profit at selling price is
constant at 25 per cent throughout the year to 31st March, 2017. Branch manager is entitled to a
commission of 10 per cent of the profit earned by his branch, calculated before charging his
commission but subject to a deduction from such commission equal in 25 per cent of any ascertained
deficiency of branch stock. All goods were supplied to the branch in head office. The following details for
the year ended 31st March, 2017 are given as follows:
10. 18
Opening Stock (at cost) Rs. 74,736 Chargeable expenses Rs. 49,120
Goods sent to branch (at cost) Rs. 2,89,680 Closing Stock (Selling Price) Rs. 1,23,328
Sales Rs. 3,61,280 Manager’s comm. paid on account Rs. 2,400
From the above details, you are required to calculate the commission due to manager for the year ended
31st March, 2017.

CH.
10
Q11. Dependent Branch – M1 - CP REG. PAGE NO.
From the following particulars relating to Pune branch for the year ending December 31, 2018,
prepare Branch Account in the books of Head office.
Stock at Branch on January 1, 2018 10,000
Branch Debtors on January 1, 2018 4,000
Branch Debtors on Dec. 31, 2018 4,900
Petty cash at branch on January 1, 2018 500
Furniture at branch on January 1, 2018 2,000
Prepaid fire insurance premium on January 1, 2018 150
Salaries outstanding at branch on January 1, 2018 100
Good sent to Branch during the year 80,000
Cash Sales during the year 1,30,000
Credit Sales during the year 40,000
Cash received from debtors 35,000
Cash paid by the branch debtors directly to the Head Office 2,000
Discount allowed to debtors 100
Cash sent to branch for Expenses:
Rent 2,000
Salaries 2,400
Petty Cash 1,000
Annual Insurance up to March 31, 2019 600 6,000
Goods returned by the Branch 1,000
Goods returned by the debtors 2,000
Stock on December 31,2018 5000
Petty Cash spent by branch 850
Provide depreciation on furniture 10% p.a. Goods costing Rs. 1,200 were destroyed due to fire and a sum
of Rs. 1,000 was received from the Insurance Company.
Q12. Dependent Branch – M2 – IP (ICAI-Inter New M18) REG. PAGE NO.

Ayan Ltd. invoices goods to its branch at cost plus 331/3%%. From the following particulars prepare Branch
Stock Account, Branch Stock Adjustment Account and Branch Profit and Loss Account as they would appear
in the books of head office.
Rs.
Stock at commencement at Branch at invoice Price 3,60,000
Stock at close at Branch at Invoice Price 2,88,000
Goods sent to Branch during the year at invoice price (including goods
invoiced at Rs. 48,000 to Branch on 31.03.2018 but not received by 24,00,000
Branch before close of the year).
Return of goods to head office (invoice Price) 1,20,000
Credit Sales at Branch 1,20,000
Invoice value of goods pilfered 24,000
Normal loss at Branch due to wastage and deterioration of stock
(at invoice price) 36,000
Cash Sales at Branch 21,60,000
Ayan closes its books on 31st March, 2018.
Q13. Independent Branch REG. PAGE NO.

Messrs Ramchand & Co., Hyderabad have a branch in Delhi. The Delhi Branch deals not only in the goods
from Head Office but also buys some auxiliary goods and deals in them. They, however, do not prepare
any Profit & Loss Account but close all accounts to the Head Office at the end of the year and open
them afresh on the basis of advice from their Head Office. The fixed assets accounts are also
maintained at the Head Office. The goods from the Head Office are invoiced at selling prices to give a profit
10.19
of 20 per cent on the sale price. The goods sent from the branch to Head Office are at cost. From
the following prepare Branch Trading and Profit & Loss Account and Branch Assets Account in the
Head Office Books.
Trial Balance of the Delhi Branch as on 31-12-2020

CH.
10
PARTICULARS DR. PARTICULARS CR.
HO Opening Balance on 01.01.2020 15,000 Sales 1,00,000
Goods from HO 50,000 Goods to HO 3,000
Purchases 20,000 HO Current A/c 15,000
Opening Stock (HO Supplied at IP) 4,000 Sundry Creditors 3,000
Opening Stock of other Goods 500
Salaries 7,000
Rent 3,000
Office Expenditure 2,000
Cash on Hand 500
Cash at Bank 4,000
Sundry Debtors 15,000
TOTAL 1,21,000 TOTAL 1,21,000
The Branch balances as on 1st January, 2020, were as under: Furniture Rs. 5,000; Sundry Debtors Rs.
9,500; Cash Rs. 1,000, Creditors Rs. 30,000. The closing stock at branch of the head office goods at
invoice price is Rs. 3,000 and that of purchased goods at cost is Rs. 1,000. Depreciation is to be
provided at 10 per cent on branch assets.

Ring Bell Ltd. Delhi has a Branch at Bombay where a separate set of books is used. The following is the trial
balance extracted on 31st December, 2020.
Head Office Trial Balance
PARTICULARS DR. AMT. CR. AMT.
Share Capital
(Authorised: 10,000 Equity Shares of Rs. 100 each):
Issued: 8,000 Equity Shares 8,00,000
Profit & Loss Account - 1-1-2020 25,310
General Reserve 1,00,000
Fixed Assets 5,30,000
Stock 2,22,470
Debtors and Creditors 50,500 21,900
Profit for 2020 52,200
Cash Balance 62,730
Branch Current Account 1,33,710
TOTAL 9,99,410 9,99,410
Branch Trial Balance

PARTICULARS DR. AMT. CR. AMT.
Fixed Assets 95,000
Profit for 2020 31,700
Stock 50,460
Cash Balance 6,550
Head Office Current Account 1,29,010
TOTAL 1,71,110 1,71,110
The difference between the balances of the Current Account in the two sets of books is accounted for as
follows:
(a) Cash remitted by the Branch on 31st December, 2020, but received by the Head Office on 1st
January 2021 - Rs. 3,000.
(b) Stock stolen in transit from Head Office and charged to Branch by the Head Office, but not credited
10. 20
to Head Office in the Branch books as the Branch Manager declined to admit any liability (not
covered by insurance) - Rs. 1,700.
Give the Branch Current Account in HO Books after incorporating Branch Trial Balance through Journal.

CH.
10
KP manufactures a range of goods which it sells to wholesale customers only from its head office. In
addition, the H.O. transfers goods to a newly opened branch at factory cost plus 15%. The branch
then sells these goods to the general public on only cash basis. The selling price to wholesale
customers is designed to give a factory profit which amounts to 30% of the sales value. The selling
price to the general public is designed to give a gross margin (i.e., selling price less cost of goods
from H.O.) of 30% of the sales value. KP operates from rented premises and leases all other types of fixed
assets. The rent and hire charges for these are included in the overhead costs shown in the trial
balances.
From the information given below, you are required to prepare for the year ended 31st Dec., 2020 in
columnar form.
(a) A Profit & Loss account for (i) H.O. (ii) the branch (iii) the entire business.
(b) Balance Sheet as on 31st Dec., 2020 for the entire business.
H.O. BRANCH
PARTICULARS
DR. CR. DR. CR.
Raw Material Purchased 35,000
Direct Wages 1,08,500
Factory Overheads 39,000
Stock on 01-01-2020
Raw Material 1,800
Finished Goods 13,000 9,200
Debtors 37,000
Cash 22,000 1,000
Administrative Salaries 13,900 4,000
Salesmen Salaries 22,500 6,200
Other Admin & Selling Overheads 12,500 2,300
Inter-Unit Accounts 5,000 2,000
Capital 50,000
Sundry Creditors 13,000
Provision for unrealized profit in stock 1,200
Sales 2,00,000 65,200
Goods sent to Branch 46,000
Goods received from HO 44,500
TOTAL 3,10,200 3,10,200 67,200 67,200
Notes:
(1) On 28th Dec., 2020 the branch remitted Rs. 1,500 to the H.O. and this has not yet been recorded in
the H.O. books. Also on the same date, the H.O. dispatched goods to the branch invoiced at Rs.
1,500 and these too have not yet been entered into the branch books. It is the company’s policy to
adjust items in transit in the books of the recipient.
(2) The stock of raw materials held at the H.O. on 31st Dec., 2020 was valued at Rs. 2,300.
(3) You are advised that:
• there were no stock losses incurred at the H.O. or at the branch.
• it is KP’s practice to value finished goods stock at the H.O. at factory cost.
• there were no opening or closing stock of work-in-progress.
(4) Branch employees are entitled to a bonus of Rs. 156 under a bilateral agreement.
Goods worth Rs. 50,000 sent by head office but the branch has received till the closing date goods for worth
Rs. 40,000 only. Give journal entry in the books of H.O. and branch for goods in transit.

10.21
Alpha having head office in Mumbai has a branch in Nagpur. The branch at Nagpur is an independent
branch maintaining separate books of account. On 31.3.2020, it was found that the goods dispatched by
head office for Rs. 2,00,000 was received by the branch only to the extent of Rs. 1,50,000. The balance goods
are in transit. What is the accounting entry to be passed by the branch for recording the goods in transit,
in its books?
CH.
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AFFIX of Kolkata has a branch at Delhi to which the goods are supplied from Kolkata but the cost
thereof is not recorded in the Head Office books. On 31st March, 2020 the Branch Balance Sheet was
as follows:
LIABILITIES AMT. ASSETS AMT.
Creditor’s Balance 40,000 Debtor’s Balance 2,00,000
Head Office 1,68,000 Building Extension A/c closed by -
transfer to H.O. A/c
Cash at Bank 8,000
TOTAL 2,08,000 TOTAL 2,08,000
During the six months ending on 30-9-2020 , the following transactions took place at Delhi.
Sales 2,40,000 Manager’s Salary 4,800
Purchases 48,000 Collections from Debtors 1,60,000
Wages paid 20,000 Discounts allowed 8,000
Cash paid to Creditors 60,000 General Expenses 1,600
Building Account (further payment) 4,000 Fire Insurance (paid for one year) 3,200
Cash in Hand 1,600 Remittance to H.O. 38,400
Cash at Bank 28,000 Discount earned 1,200
Salaries (inclusive of advance of Rs. 2,000) Rs. 6,400

The following Trial balances as at 31st December, 2020 have been extracted from the books of Major Ltd.
and its branch at a stage where the only adjustments requiring to be made prior to the
preparation of a Balance Sheet for the undertaking as a whole.
H.O. BRANCH
PARTICULARS
DR. CR. DR. CR.
Share Capital 1,50,000
Fixed Assets 75,125 18,901
Current Assets 1,21,809 23,715 (Note 3)
Current Liabilities 34,567 9,721
Stock Reserve 1st Jan 2020 (Note 2) 693
Revenue Account 43,210 10,250
Branch Account 31,536
Head Office Account 22,645
TOTAL 2,28,470 2,28,470 42,616 42,616
You are required to record the following in the appropriate ledger accounts in both sets of books:
Notes:
1. Goods transferred from Head Office to the Branch are invoiced at cost plus 10% and both
Revenue Accounts have been prepared on the basis of the prices charged.
2. Relating to the Head Office goods held by the Branch on 1st January, 2020.
3. Includes goods received from Head Office at invoice price Rs. 4,565.
4. Goods invoiced by Head Office to Branch at Rs. 3,641 were in transit at 31st December, 2020,
as was also a remittance of Rs. 3,500 from the Branch.
5. At 31st December, 2020, the following transactions were reflected in the Head Office books but
unrecorded in the Branch books.
The purchase price of lorry, Rs. 2,500, which reached the Branch on December 25th; a sum received on
December 30, 2020 from one of the Branch debtors, Rs. 750.
Q20. Independent Branch (Inter-Branch Adjustment Entry) REG. PAGE NO.
Show adjustment journal entry in the books of head office at the end of April, 2020 for incorporation
of inter-branch transactions assuming that only head office maintains different branch accounts in its
books.
10. 22
A. Delhi branch:
(1) Received goods from Mumbai – Rs. 35,000 and Rs. 15,000 from Kolkata.
(2) Sent goods to Chennai – Rs. 25,000, Kolkata – Rs. 20,000.
(3) Bill Receivable received – Rs. 20,000 from Chennai.
(4) Acceptances sent to Mumbai – Rs. 25,000, Kolkata – Rs. 10,000.

CH.
10
B. Mumbai Branch (apart from the above):
(5) Received goods from Kolkata – Rs. 15,000, Delhi – Rs. 20,000.
(6) Cash sent to Delhi – Rs. 15,000, Kolkata – Rs. 7,000.
C. Chennai Branch (apart from the above):
(7) Received goods from Kolkata – Rs. 30,000.
(8) Acceptances and Cash sent to Kolkata – Rs. 20,000 and Rs. 10,000 respectively.
D. Kolkata Branch (apart from the above):
(9) Sent goods to Chennai – Rs. 35,000.
(10) Paid cash to Chennai – Rs. 15,000.
(11) Acceptances sent to Chennai – Rs. 15,000
Q21. Independent Branch (Rectification Entry) REG. PAGE NO.

Give Journal Entries in the books of Branch A to rectify or adjust the following:
(i) Head Office expenses Rs. 3,500 allocated to the Branch, but not recorded in the Branch
Books.
(ii) Depreciation of branch assets, whose accounts are kept by the Head Office not provided earlier for
Rs. 1,500.
(iii) Branch paid Rs. 2,000 as salary to a H.O. Inspector, but the amount paid has been debited by the
Branch to Salaries account.
(iv) H.O. collected Rs. 10,000 directly from a customer on behalf of the Branch, but no intimation
to this effect has been received by the Branch.
(v) A remittance of Rs. 15,000 sent by the Branch has not yet been received by the Head Office.
(vi) Branch A incurred advertisement expenses of Rs. 3,000 on behalf of Branch B.
Q22. Independent Branch (Entries in HO Books) REG. PAGE NO.

On 31st March, 2020 Kanpur Branch submits the following Trial Balance to its Head Office at Lucknow:
Debit Balances Rs. in Lakhs Credit Balances Rs. in Lakhs
Furniture and Equipment 18 Outstanding Expenses 3
Depreciation on furniture 2 Goods Returned to Head Office 5
Salaries 25 Sales 360
Rent 10 Head Office 80
Advertising 6
Telephone, Postage and Stationery 3
Sundry Office Expenses 1
Stock on 1st April, 2019 60
Goods Received from Head Office 288
Debtors 20
Cash at bank and in hand 8
Carriage Inwards 7
TOTAL 448 TOTAL 448
Additional Information:
Stock on 31st March, 2020 was valued at Rs. 62 laces. On 29th March, 2020 the Head Office dispatched
goods costing Rs. 10 laces to its branch. Branch did not receive these goods before 1st April, 2020. Hence,
the figure of goods received from Head Office does not include these goods. Also the head office has charged
the branch Rs. 1 lac for centralized services for which the branch has not passed the entry.
You are required to:
(i) Pass Journal Entries in the books of the Branch to make the necessary adjustments
(ii) Prepare Final Accounts of the Branch including Balance Sheet, and
(iii)Pass Journal Entries in the books of the Head Office to incorporate the whole of the Branch Trial
Balance.
10.23
Q23. Independent Branch (RTP N18) REG. PAGE NO.

Pass necessary Journal entries in the books of an independent Branch of M/s TPL Sons, wherever required,
to rectify or adjust the following transactions:

CH.
10
(i) Branch paid Rs. 5,000 as salary to a Head Office Manager, but the amount paid has been debited by
the Branch to Salaries Account.
(ii) A remittance of Rs. 1, 50,000 sent by the Branch has not received by Head Office on the date of
reconciliation of Accounts.
(iii) Branch assets accounts retained at head office, depreciation charged for the year Rs. 15,000 not
recorded by Branch.
(iv) Head Office expenses Rs. 75,000 allocated to the Branch, but not yet been recorded by the Branch.
(v) Head Office collected Rs. 60,000 directly from a Branch Customer. The intimation of the fact has not
been received by the Branch.
(vi) Goods dispatched by the Head office amounting to Rs. 50,000, but not received by the Branch till
date of reconciliation.
(vii) Branch incurred advertisement expenses of Rs. 10,000 on behalf of other Branches, but not
recorded in the books of Branch.
(viii) Head office made payment of Rs. 16,000 for purchase of goods by branch, but not recorded in branch
books.
Q24. Foreign Branch (Integral) REG. PAGE NO.

On 31st December, 2020 the following balances appeared in the books of Chennai Branch of an English
firm having its HO office in New York:
PARTICULARS DEBIT AMT. CREDIT AMT.
(Rs.) (Rs.)
Stock on 1st Jan., 2020 2,34,000 -
Purchases and Sales 15,62,500 23,43,750
Debtors and Creditors 7,65,000 5,10,000
Bills Receivable and Payable 2,04,000 1,78,500
Salaries and Wages 1,00,000 –
Rent, Rates and Taxes 1,06,250 -
Furniture 91,000 -
Bank A/c 5,68,650 -
New York Account - 5,99,150
TOTAL 36,31,400 36,31,400
Stock on 31 December, 2020 was Rs. 6,37,500. Branch account in New York books showed a debit balance
st
of $13,400 on 31st December, 2020 and Furniture appeared in the Head Office books at $1,750.
The rate of exchange for 1$ on 31st December, 2019 was Rs. 52 and on 31st December, 2020 was Rs. 51.
The average rate for the year was Rs. 50.
Prepare in the Head Office books the Profit and Loss a/c and the Balance Sheet of the Branch assuming
integral foreign operation.

S & M Ltd., Bombay, have a branch in Sydney, Australia. Sydney branch is an integral foreign operation of
S & M Ltd. At the end of 31st March, 2002, the following ledger balances have been extracted from the
books of the Bombay Office and the Sydney Office:
BOMBAY (Rs. ‘000’) SYDNEY (AUS$ ‘000’)

PARTICULARS
DR. CR. DR. CR.
Share Capital – 2,000 – –
Reserves & Surplus – 1,000 – –
Land 500 – – –
Buildings (Cost) 1,000 – – –
Buildings Dep. Reserve – 200 – –
10. 24
Plant & Machinery (Cost) 2,500 – 200 –

Plant Machinery Dep. Reserve – 600 – 130
Debtors / Creditor 280 200 60 30
Stock (1.4.2001) 100 – 20 –

CH.
10
Branch Stock Reserve – 4 – –
Cash & Bank Balances 10 – 10 –
Purchases / Sales 240 520 20 23
Goods sent to Branch – 100 5 –
Managing Director’s salary 30 – – –
Wages & Salaries 75 – 45 –
Rent – – 12 –
Office Expenses 25 – 18 –
Commission Receipts – 256 – 100
Branch / H.O. Current A/c 120 – – 7
TOTAL 4,880 4,880 390 390
The following information is also available:
Stock as at 31.3.2002: Bombay Rs. 1, 50,000 and Sydney AUS$ 3,125
You are required to convert the Sydney Branch Trial Balance into rupees; Use the following rates of
exchange:
Opening rate AUS $ = Rs. 20
Closing rate AUS $ = Rs. 24
Average rate AUS $ = Rs. 22
For Fixed Assets AUS $ = Rs. 18.
Q26. Foreign Branch (Similar to RTP M19) REG. PAGE NO

M/s Carlin has head office at New York (U.S.A.) and branch at Mumbai (India). Mumbai branch is an integral
foreign operation of Carlin & Co. Mumbai branch furnishes you with its trial balance as on 31st March, 2002
and the additional information given thereafter:
(Rs. ‘000’) (Rs. ’000’)
Stock on 1st April, 2001 300 –
Purchases and Sales 800 1,200
Sundry Debtors and Creditors 400 300
Bills of exchange 120 240
Wages and salaries 560 –
Rent, rates and taxes 360 –
Sundry charges 160 –
Computers 240
Bank balance 420 –
New York office A/c – 1,620
TOTAL 3,360 3,360
Additional information:
(a) Computers were acquired from a remittance of US $ 6,000 received from New York head office and paid
to the suppliers. Depreciate computers at 60% for the year.
(b) Unsold stock of Mumbai branch was worth Rs. 4, 20,000 on 31st March, and 2002.
(c) The rates of exchange may be taken as follows:
• On 1.4.2001 @ Rs. 40 per US $
• On 31.3.2002 @ Rs. 42 per US $
• Average exchange rate for the year @ Rs. 41 per US $
• Conversion in $ shall be made up to two decimal accuracy.
You are asked to prepare in US dollars the revenue statement for the year ended 31st March, 2002 and the
balance sheet as on that date of Mumbai branch as would appear in the books of New York head office of
Carlin & Co. You are informed that Mumbai branch account showed a debit balance of US $ 39609.18 on
31.3.2002 in New York books and there were no items pending reconciliation.

10.25
The Washington branch of XYZ Mumbai sent the following trial balance as on 31st December, 2011:
($) ($)
Head office A/c _ 22,800

CH.
10
Sales _ 84,000
Debtors and creditors 4,800 3, 400
Machinery 24,000 _
Cash at bank 1,200 _
Stock, 1 January, 2011 11,200 _
Goods from H.O. 64,000 _
Expenses 5,000 _
TOTAL 1,10,200 1,10,200
In the books of head office, the Branch A/c stood as follows:

Washington Branch Account
PARTICULARS AMT. PARTICULARS AMT.
To Balance b/d 8,10,000 By Cash 28,76,000
To Goods sent to Branch 29,26,000 By Balance c/d 8,60,000
TOTAL 37,36,000 TOTAL 37,36,000
Goods are sent to the branch at cost plus 10% and the branch sells goods at invoice price plus 25%.
Machinery was acquired on 31st January, 2007, when $ 1.00 = Rs. 40.
Rates of exchange were:
1st January, 2011 $1.00=Rs. 46
31st December, 2011 $ 1.00=Rs. 48
Average $1.00=Rs. 47
Machinery is depreciated @ 10% and the branch manager is entitled to a commission of 5% on the profits
of the branch.
You are required to:
(i) Prepare the Branch Trading & Profit & Loss A/c in dollars.
(ii)Convert the Trial Balance of branch into Indian currency and prepare Branch Trading & Profit and Loss
A/c and the Branch A/c in the books of head office
Q28. Foreign Branch (CA-Inter New M19) REG. PAGE NO.

M/s Rani & Co. has head office at Singapore and branch at Delhi (India). Delhi branch is an integral foreign
operation of M/s Rani & Co. Delhi branch furnishes you with its Trial Balance as on 31stMarch, 2019 and
the additional information thereafter
(Rs. ‘000’) (Rs. ’000’)
Stock on 1st April, 2018 600 -
Purchases and Sales 1,600 2,400
Sundry Debtors and Creditors 800 600
Bills of Exchange 240 480
Wages 1,120 -
Rent, rates and taxes 720 –
Sundry Expenses 320 –
Computers 600 –
Bank Balance 520 -
Singapore Office A/c - 3,040
TOTAL 6,520 6,520
Additional information:
(a) Computers were acquired from a remittance of Singapore dollar 12,000 received from Singapore Head
Office and paid to the suppliers. Depreciate Computers at the rate of 40% for the year.
(b) Closing Stock of Delhi branch was Rs. 15, 60,000 on 31st March, 2019.
(c) The Rates of Exchange may be taken as follows:
(i) On 1.4.2018 @ Rs. 50 per Singapore Dollar
10. 26
(ii) On 31.3.2019@ Rs. 52 per Singapore Dollar

(iii) Average Exchange Rate for the year @ Rs. 51 per Singapore Dollar.
(iv) Conversion in Singapore Dollar shall be made up to two decimal accuracy.

CH.
10
(d) Delhi Branch Account showed a debit balance of Singapore Dollar 59,897.43 on 31.3.2019 in the Head
office books and there were no items pending for reconciliation.
In the books of Head office you are required to prepare:
(1) Revenue statement for the year ended 31st March, 2019 (in Singapore Dollar)
(2) Balance Sheet as on that date. (In Singapore Dollar)
Q29. Foreign Branch (CA-Inter New N19) REG. PAGE NO.

Karan enterprises having its Head Office in Mangalore, Karnataka has a branch in Greenville, USA.
Following is the trail balance of Branch as at 31-3-2019:
($) ($)
Fixed assets 8,000
Opening inventory 800
Cash 700
Goods received from Head Office 2,800
Sales 24,050
Purchases 11,800
Expenses 1,800
Remittance to head office 2,450
Head office account 4,300
TOTAL 28,350 28,350
(i) Fixed assets were purchased on 1stApril, 2015.
(ii) Depreciation at 10% p.a. is to be charged on fixed assets on straight line method.
(iii) Closing inventory at branch is $ 700 as on 31-3-2019.
(iv) Goods received from Head Office (HO) were recorded at Rs. 1, 85,500 in Head office books.
(v) Remittances to HO were recorded at Rs. 1, 62,000 in HO books.
(vi) HO account is recorded in HO books at Rs. 2, 84,500.
(vii) Exchange rates of US Dollar at different dates can be taken as:
1-4-2015 Rs. 63
1-4-2018 Rs. 65 &
31-3-2019 Rs. 67.
Prepare the trial balance after been converted into Indian rupees in accordance with AS- 11.

Q1. Dependent Branch – M1 & M3 - IP REG. PAGE NO.

M/s Ayaram Gayaram, Cuttack, started on 1st April, 2008 two branches at Berhampur and Nagpur. All
goods sold at the branch are received from the Head Office invoiced at cost plus 25 %. All expenses relating
to the Branches are paid by the Head Office. Each Branch has its own Sales Ledger and sends weekly
statements.
All cash collections are remitted daily to the Head Office by the Branches. The following particulars relating
to the year ended 31st March 2009, have been extracted from the weekly statement sent by the branches.
Berhampur Nagpur
Rs. Rs.
Credit Sales 1,25,200 1,10,000
Cash Sales 78,600 85,200
10.27
Sales Returns 2,300 1,200

Sundry Debtors 34,500 23,600
Rent and Rates 3,200 4,500
Bad Debts 6,000 -

CH.
10
Salaries 16,000 18,000
General Expenses 2,600 1,500
Goods received from H.O. 1,50,000 1,25,000
Advertisement 7,500 5,200
Stock on 31st March, 2009 45,000 35,000
You are to required to prepare the Branch Accounts as they would appear in the books of the Head Office,
showing the profit or loss for the period and the Trading and Profit and Loss Account separately for each
branch.
Q2. Dependent Branch – M2 – IP REG. PAGE NO.

PQ Ltd., Kolkata, started a branch in Mumbai on 1st April, 2008 to which goods were sent at 20 % above
cost. The branch makes both credit and cash sales. Branch expenses are met from branch cash and balance
money remitted to H. O. The branch does not maintain double entry books of account and necessary
accounts relating to branch are maintained in H.O.
Following further details are given for the year ended on 31st March, 2009:
Rs.
Cost of Goods sent to Branch 50,000
Goods received by Branch till 31st March, 2009 at invoice price 54,000
Credit sales for the year 58,000
Debtors as on 31st March, 2009 20,800
Bad Debts and Discount written off 200
Cash remitted to H.O. 43,000
Cash in hand at Branch on 31st March, 2009 2,000
Cash remitted by H.O. to Branch during the year 3,000
Closing stock at Branch at Invoice price 6,000
Expenses incurred at Branch 12,000
Show the necessary Ledger Accounts in the books of the Head Office and determine the Profit or Loss of
the Branch for the year ended on 31st March, 2009.
Q3. Dependent Branch – Valuation of Inventory at Branch REG. PAGE NO.

Head Office sends goods to Branch @ 20 % profit on cost, freight and duties amounting to 10 % on invoice
value being paid by Branch. Branch sells at 20 % G.P. on selling price.
The Branch is sold out with effect from 31.12.2008 but stock taken on 10.1.2009. The price for stock was
agreed to be the cost to Head Office to be increased by actual expenses incurred by the Branch less Rs.
6,000. Stock on 10.1.2009 (at Branch Cost) amounted to Rs. 64,600, Rs. 6,000 stock (invoice value) was
received from the Head Office after 31.12.2008 but before 10.1.2009. Sales in this period amounted to Rs.
10,000. Ascertain the selling price of stock as on 31.12.2008 agreed to with the buyers.
10. 28

CH.
10
Q4. Independent Branch (Rectification Entries) REG. PAGE NO.
Global Limited has a branch which closes its books of account every year on 31st March. This is an
independent branch which maintains comprehensive books of account for recording their transactions.
You are required to show journal entries in the books of branch on 31st March, 2011 to rectify or adjust
the following:
(i) Head Office allocates Rs. 1,35,000 to the branch as head office expenses, which have not yet been
recorded by branch.
(ii) Depreciation of branch fixed assets, whose accounts are kept by head office in its books, not yet
recorded in the branch books, Rs. 1,15,000.
(iii) Branch paid Rs. 1,40,000 as salary to an official from head office on visit to branch and debited the
amount to its Salaries Account.
(iv) Head Office collected Rs. 1,30,000 directly from a branch customer on behalf of the branch, but no
intimation was received earlier by the branch. Now the branch learns about it.
(v) It is learnt that a remittance of Rs. 1,50,000 sent by the branch has not been received by head office
till date.

On 31st December, 2008 the following balances appeared in the books of the Kolkata Branch of an English
firm having its Head Office in London:
Dr. (Rs. '000) Cr. (Rs. '000)
Stock on 1.1.2008 12,600 -
Purchases and sales 75,000 1,12,500
Bills of exchange 10,400 9,100
Wages and salaries 4,800 -
Rent, Rates and taxes 3,600 -
Sundry charges 1,500 -
Furniture and Fixtures 4,910 -
Bank Balance 28,990 -
London Office ___________ 33,200
Total 1,80,800 1,80,800
Stock on 31.12.2008 was Rs. 32,500 thousands. Kolkata Branch Account in the books of London Office
showed a debit balance of Pounds 560 thousands on 31.12.2008. Fixtures and furniture were acquired
from a remittance received from London of pounds 100 thousand which exactly covered the cost of such
fixtures, etc.
The rates of exchange may be taken at –
Date Rate
31.12.2007 Rs. 65 per pound
31.12.2008 Rs. 68 per pound
The average rate for the year 2008 may be taken at Rs. 62 per pound.
Prepare the Trading and Profit and Loss Account and Balance Sheet relating to Kolkata Branch in the
10.29
London Books, Treating Branch as Intergral Branch.

CH.
10

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Ch.10 Branch Accounting

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Rs.TO GET 10% OFF ON UNACADEMY SUBSCRIPTIONS

DOMESTIC BRANCH FOREIGN BRANCH

Dependent Independent Integral / Non-Integral /

Cost Price / Wholesale

M1: Debtor’s Method Wholesale Branch Method

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

(v) Profit or loss arising out of sale of a fixed asset.

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

ii. Stock and Debtors System:

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

For the receiving branch, the entry will be:

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

PROFORMA OF BRANCH ACCOUNTS

2. BRANCH DEBTORS ACCOUNT:

3. GOODS SENT TO BRANCH ACCOUNT:

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

6. BRANCH EXPENSES ACCOUNT:

7. BRANCH PROFIT AND LOSS ACCOUNT:

iii. Trading and Profit and Loss A/c. Method:

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

4. DISTINCTION BETWEEN WHOLESALE AND RETAIL PROFIT OF A BRANCH

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

6. FOREIGN BRANCH (FOREIGN OPERATIONS)

Following are some of the relevant definitions in AS 11:

The following is the procedure to be applied for conversion:

b. Exchange Rates applicable for conversion on Balance Sheet Date:

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

c. Disposal of Branch or Operations:

d. Change in classification of Foreign Branch / Operation: On the principle of Consistency, once

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

IN-CLASSROOM PROBLEMS PRACTISE PROBLEMS SELF-ASSESSMENT PROBLEMS

Q1. Dependent Branch – M1 & M3 - CP REG. PAGE NO.

Q2. Dependent Branch – M1,M2 & M3 - CP REG. PAGE NO.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

Cost of goods sent to Branch at cost 2,00,000

Q4. Dependent Branch – M3 - IP REG. PAGE NO.

Q5. Dependent Branch – M1 - IP REG. PAGE NO.

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Q7. Dependent Branch – M1 & M3 - IP REG. PAGE NO.

A/c (excluding branch transactions).

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

Q9. Dependent Branch – M1 - IP REG. PAGE NO.

Q10. Dependent Branch (RTP M18) REG. PAGE NO.

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Q12. Dependent Branch – M2 – IP (ICAI-Inter New M18) REG. PAGE NO.

Q13. Independent Branch REG. PAGE NO.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

Q14. Independent Branch REG. PAGE NO.

Branch Trial Balance

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Q17. Independent Branch REG. PAGE NO.

Q19. Independent Branch REG. PAGE NO.

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

Q21. Independent Branch (Rectification Entry) REG. PAGE NO.

Q22. Independent Branch (Entries in HO Books) REG. PAGE NO.

Q23. Independent Branch (RTP N18) REG. PAGE NO.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

Q24. Foreign Branch (Integral) REG. PAGE NO.