: 14 ACCOUNTING FOR INLAND BRANCHES Many concerns carry on their business in different establishments scattered indifferent towns and cities. The main establishment is called the Head Office and its off-shoots are called Branches. Thus, a branch may be defined as an establishment which is a segment of an enterprise, geographically separated from the main establishment, carrying on same or substantially the same activities as that of the enterprise and acting under the directions and control of the Head Office. Branch is not a separate legal entity. For example, Bata Shoe Company has branches spread over the whole country. Branch is treated as a separate profit centre from the accounting point of view. Profit earned or loss incurred by various branches for a particular accounting period is separately ascertained for taking managerial decisions. From the accounting point of view, the branches may be classified as follows : Branches Inland Branches Foreign Branches Independent ee Branches Branches Inland branches are those branches which are situated in the country in which the head office is situated and foreign branches are those branches which are situated in countries other than that of the head office. In this chapter accounts of i discussed as accounts of foreign branches is mand branches ha a) of Deh Universi. Inland branches may be: ) dependent branches and (2) independent rn end or —— branches depend upon the head office for theit activities meer en eee operate ‘dependently within the broad policies Ps ae a office. They aintain accounting records by double entry 14.1 es Scanned with CamScannerCHES 14.2 ACCOUNTING FOR INLAND BRANCI DEPENDENT BRANCHES ue whose policies and administration are totally and the head office maintains the accounts of nch does not maintain complete record of the ry system. [t prepares only those accouny, whichareconsidered necessary. Thus a dependent branch substantially depen ds upon the head office. Goods are invoiced by the head office to : ie branch for sale, The dependent branches usually sell the goods which are supplied by the head office. Sales are made by these branches usually oncash basis. Sometimes, they are allowed to make credit sales also. Usually he head office pays all the branch expenses except petty expenses. All the cash collected from cash sales and from debtors is remitted to the head office on daily basis. There may be service branches and retail selling branches. Service branches books or execute orders on behalf of the head office. Therefore, they incur expenses in the form of salaries, wages, telephone expenses, travelling expenses, etc, The head office sends cash to meet those expenses, periodically. Expenses, incurred by the branch are transferred to the General Profit and Loss Account. A dependent branch is one controlled by the head office the branch. A dependent bra transactions on the basis of double entr In case of retail selling branches, the head office may maintain the accounts of such branches by any one of the followings methods : 1. Debtors System. 2. Stock and Debtors System. 3. Final Accounts System. 4. Wholesale Branch System. DISTINCTION BETWEEN DEPENDENT BRANCH AND INDEPENDENT BRANCH The following are the points of distinction between the dependent branches and independent branches : 1. Books of account : Dependent branches do not keep the accounts 9 double entry basis while the independent branches maintain theaccoun's on double entry basis. 2, Sale of goods : Dependent branches usually sell the goods which at supplied by the head office. Independent branches can purchase he goods locally also for purpose of sale. Independent branches may be manufacturing units also and they may purchase the new materia locally. id 3. Expenses : Regular Expenses of dependent branches are paid by he office. Independent branches meet their own expenses. Scanned with CamScannerACCOUNTING FOR INLAND BRANCHES 14.3 4, Remittances : daily basis. But to head office. Dependent eee peaetey remit cash to the head office on ‘anches do not remit cash on daily basis pEBTORS SYSTEM qhis system of accounting is usually adopted when size of the branch is very small. qhe following are the features of debtors system of branch accounting : 4. Under this system, a Branch Account i: t . rately in the books of the head office. ee eae 2. Transactions which take place between the head office and the branch and between the branch and other branches are recorded in the Branch Account by the head office and profit or loss is also ascertained from this account. 3. A branch is known by the place and/or locality where it is located such as Delhi Branch, Mumbai Branch, Kolkata Branch, Chennai Branch, Chandni Chowk Delhi Branch and so on. A code number may be used for each branch. 4, Under this system, the entries are passed in the books of the head office treating the branch as a debtor of head office. . The transactions which take place between the branch and a third party such as cash and credit sales, returns of goods by the debtors of the branch to the branch are not recorded by the head office. Similarly, bad debts, discount allowed, expenses incurred by the branch and normal and abnormal loss of stock are not recorded. 6. In the branch account opening and closing balances of assets and lia- and cash sent to the branch and goods bilities of the branch, the goods returned to the head office by the branch and branch debtors and cash remitted to the head office are re’ 1. The goods are invoiced by the head o| or cost plus load. When the goods are sen! is popularly known as the invoice price. Under thi nch Account is prepared in head office books. ae ee Account, Memorandum Branch Stock Memorai btor: ndum Branch Debtors 1 Account, Memorandum Branch Cash Account etc, ifnecessary, are also d find out the missing figure. Prepared as working notes to or the loss incurred by the branch is 9: The profit earned by the branch transferred to the General Profit and Loss Account. 2 corded. ffice to the branch either at cost t at more than cost, the price rd Scanned with CamScanner) BRANCHES ‘of INLANT accountit There is NO unanimity stem. Different about the account under account in nature. They argue that the entries in the Branch Account for goods sent to the branch and for cash sent to a a Hine as per the rules of personal account. Similarly, the entries for goods returned by the branch and for ash remitted by the branch to the H.O. are made as per the rules of personal account. Most of the academicians are of the opinion that it is nominal account as the purpose of preparing this account is calculation of profit earned by the branch for the accounting period. Very few persons are of the opinion that it has the features of real account also as the balance of branch stock and branch fixed assets ele. are brought forward and carried forward in the account. It is submitted that it is not a real account. Some are of the opinion that it is a unique account which has the characteristics of all the three types of accounts. ACCOUNTING TREATMENT WHEN GOODS ARE SENT TO BRANCH AT COST Methods of maintaining branch Account Branch Account, under the debtors System may or may not be closed at the end of the accounting year. (1) When Branch Account is not closed at the end of the Accounting year. When Branch Accountis not closed at the end of the accounting year by transfer of closing assets and liabilities, Branch Account will show a debit balance equal to value of its closing assets, and credit balance equal to closing liabili . In such a case, on the credit side of the branch Account, “By balance ¢ a” equal 5 the closing assets is recorded (details given in the inner column), in place eee carer " Similarly, on the debit side “To Balance c/d” equal to losing liabilities is recorded (details given it inner i cK eats Deere ad given in the inner column), it place (2) When Branch Account is closed at the end of the accounting year When Branch Account is closed at the end of the accounting year, closing assets on liabilities are transferred to the Branch Account by debiting closing ae Assets (individually) and crediting Branch Account. Similarly, Branch Lie is debited and closing Branch Liabilities (individually) are credit ese entries are reversed in the beginning of the next accounting year: Other entries, in both the cases are same Branch Accounts debited in the beginning of the year with the of ___ of branch assets such as stock at cost, debtors, furniture, petty ¢ ci, ‘TAXMANN® ——————— Scanned with CamScanner 144 Debtors System. jer Debtors: nature of thi count under h Ac ch Account und ture of Bran different opinion some say itis a personal adebtor and therefore, Nature of Branc’ ding the nat demicians ha tem. a Debtors 8} branch is t eated a pening balances ash, prepa