MAKERERE UNIVERSITY BUSINESS SCHOOL

BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

Autonomous Branches or independent branches

 Accounting work is done by the branches. A complete set of accounting books is

maintained at the branch (es). The branch may have its own accountant who prepares
and closes off the respective ledger accounts, then a trial balance is extracted and sent to
the head office for incorporation in the head office final accounts or financial statements.

 These operate with a high degree of independence. They are allowed to purchase goods
from the local markets using their cash sales. The head office provides the capital but the
branch (es) carry on their own business activities.

 Relationship between the head office and the branch: Branch being a customer in the
head office books and the head office being a supplier in the customers’ books.

 We recognise the branch books and also the head office books; preparation of a head
office current account in the branch books and a branch current account in the head
office books.
Journal entries in the branch books;

 When goods are received by the branch

Debit: Branch Inventory account
Credit: Head office current account--- a credit balance

 Cash remitted to the head office

Debit: Head office current account

Credit: Branch Cash account

 Returns to the Head office

Debit: Head office current account
Credit: Branch inventory account

 Branch profit for the year

Debit: Branch profit or loss a/c
Credit: Head office current a/c

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

Journal entries in the head office books;

 When goods are sent to the Branch

Debit: Branch Current account--- a debit balance
Credit: Goods sent account

 Cash remittances received from the branch

Debit: Head office cash account
Credit: branch current account

 Returns from the branch

Debit: Goods sent account
Credit: Branch current account
 Branch profit for the year:

Debit: Branch current account

Credit: H/O profit and loss a/c

Items in transit cause the branch current and head office current account not to balance;
Examples goods in transit, cash in transit and returns in transit
Goods in transit: These are goods that have been forwarded to the branch but by the time of
preparation of books of accounts, they are still in transit.
Debit: Goods in transit ---- current asset
Credit: Branch current account

Cash in transit: this is cash that is forwarded by the branch to the head office but by the end of
the accounting period, it has not been received by the head office.
Debit: Cash in transit ---- current asset in balance sheet
Credit: Branch current account

Returns in transit: These are goods returned by the branch to the head office but by the time
preparation of the books of accounts, they are not yet received.
Debit: Returns in transit -- current asset
Credit: Branch current account

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

EXAMPLE(S) ON CURRENT ACCOUNTS

XYZ Limited have their head office in Kampala and a branch in Kasese. The following information
relates to the year ended 31 December 2000 regarding the transaction between the head office
and the branch.
Transactions Head office Branch
Goods sent 3,000
Goods received 2,800
Cash sent to head office 2,600
Cash received from branch 2,500
Branch current account 500
Head office current account 500
Branch profit for the year 800

Required: Prepare the following accounts for the year ended 31 December 2000; a) Branch
current account b) Head office current account.

In the head office books:

Branch current account
Bal b/d 500 Cash received 2,500
Goods sent 3,000 Cash in transit (2,600 – 2,500) 100
Branch profit 800 Goods in transit (3,000 – 2,800) 200
Bal c/d 1,500
Total 4,300 Total 4,300

In the branch books:

Head office current account
Cash sent 2,600 Bal b/d 500
Goods received 2,800
Branch profit 800
Bal c/d 1,500
Total 4,100 Total 4,100

WORK OUT:
Stabex Enterprises Limited has its head office in Nakawa and a branch in Kawempe. The following
information relates to the year ended 31/12/2016 concerning the transactions between the head
office and the branch. Goods sent to the branch were 6,000, goods received by the branch were
5,600, cash sent and received by the head office was 5,200, branch net profit for the year was
1,600 and the head office and branch current account balances were 3,000 each.
Required: Prepare the current accounts both in the books of the Head office and Branch for the
year ended 31/12/2016.

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

EXAMPLE 2
Kad Traders Limited (KTL) in Uganda operates a wholesale store with a head office in Kampala
and a branch in Nakawa. Below is the trial balance for the year ended December 31, 2018.
DETAILS HEAD OFFICE BRANCH
Debit Credit Debit Credit
Shs '000' Shs'000' Shs'000' Shs'000'
Share Capital 520,400
Share Premium 79,600
General Reserves 60,000
Profit and Loss Account 110,000
Receivables/Payables 95,000 70,000 29,400 14,400
Head office Current Account 103,000
Good will 150,000
Buildings (cost) 350,000 100,000
Fixtures & Fittings 100,000 40,000
Motor Vehicles (cost) 90,000
Accumulated Depreciation:
Fixtures & Fittings 20,200 32,800
Motor Vehicles 7,200
Inventory 97,000 30,800
Bank Balance 29,800 5,200
Cash Balance 2,000 1,000
Purchases/Sales 510,000 459,400 297,000 379,400
Goods Sent 308,000
Branch Current Account 120,000
Legal expenses 10,800 1,000
Distribution Expenses 21,000 4,200
Administration Expenses 62,000 21,000
Provision for unrealised
profit on Inventory 2,800
Total 1,637,600 1,637,600 529,600 529,600

Notes:
1. All goods sold by the branch are supplied from the head office at cost plus 10%. Inventory at
December 31, 2018 excluding goods in transit were valued at Head office Shs 109,500,000
and Branch Shs 35,200,000.
2. The branch deposited Shs 6,000,000 on behalf of the Head office in the local branch of the
company’s bankers on December 31, 2018. No record had been made in the books of the
Head office. At the year-end, goods in transit amounted to Shs 11,000,000.
3. It’s the company’s policy to depreciate buildings and motor vehicles at 5% on cost and
Fixtures and Fittings at 10% reducing balance.

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

Required:
a) Prepare the branch current account to reconcile the head office and branch current account
balances. (3 marks)
b) Prepare KTL’s combined statement of profit or loss for the year ended December 31, 2018
and statement of financial position as at that date. (17 marks)
(Total 20 marks)
Part (a)
Branch current account
Bal b/d 120,000,000 Cash in transit 6,000,000
Goods in transit 11,000,000
Bal c/d 103,000,000
Total 120,000,000 Total 120,000,000

KTL Combined Statement of Profit or Loss for the year ended 31 December 2018. Amounts in
Ugx.
Details Head Office Branch Details Head Office Branch
Shs’000’ Shs’000’ Shs’000’ Shs’000’
Opening stock 97,000 30,800 Sales 459,400 379,400
Purchases 510,000 Goods sent 308,000
Goods received 297,000 Closing stock 109,500 35,200
Un-realised 3,200 Realised profit 2,800
profit on closing on opening stock
stock
Gross profit 269,500 86,800
Sub-total 879,700 414,600 Sub -total 879,700 414,600
Legal expenses 10,800 1,000 Gross profit b/d 269,500 86,800
Distribution 21,000 4,200 Profit and loss 110,000
expenses (TB)
Administration 62,000 21,000
expenses
Depreciation;
Buildings 17,500 5,000
Fixtures and 7,980 720
fittings
Motor vehicles 4,500
Profit for the 255,720 54,880
year
Total 379,500 86,800 Total 379,500 86,800

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

KTL combined statement of financial position as at 31 December 2018. Amounts in Ugx.

ASSETS
Non-Current Assets Cost Acc Depn NBV
Motor Vehicles 90,000 (11,700) 78,300
Fixtures and fittings;
Head office 100,000 (28,180) 71,820
Branch 40,000 (33,520) 6,480
Buildings:
Head office 350,000 (17,500) 332,500
Branch 100,000 (5,000) 95,000
584,100
Intangible assets: Good will 150,000
Current Assets:
Cash in transit 6,000
Goods in transit 11,000
Closing stock;
Head office 109,500
Branch (35,200 -3,200) 32,000
Receivables:
Head office 95,000
Branch 29,400
Bank balance;
Head office 29,800
Branch 5,200
Cash balance;
Head office 2,000
Branch 1,000 320,900
TOTAL ASSETS 1,055,000
EQUITY AND LIABILITIES
EQUITY:
Share capital 520,400
Share premium 79,600
General reserves 60,000
Profits from operations;
Head office 255,720
Branch 54,880 970,600
LIABILITIES:
Trade payables;
Head office 70,000
Branch 14,400 84,400
TOTAL EQUITY AND LIABILITIES 1,055,000

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MAKERERE UNIVERSITY BUSINESS SCHOOL
BCOM2 & BSA2 NOTES ON AUTONOMOUS BRANCHES BY ZN

WORKINGS:
Provision for un-realised profit on branch stock;
100 + 10 = 110
Profit = 10/110 sales; 1/11 sales
On opening stock = 1/11 *30,800; 2,800
On closing stock = 1/11*35,200; 3,200

Depreciation on non-current assets;

Buildings =
Head office = 5%*350,000; 17,500
Branch = 5%*100,000; 5,000
Motor vehicles- head office = 5%*90,000; 4,500
Fixtures and fittings
Head office = 10%*79,800; 7,980
Branch = 10%*7,200; 720

NOTE: TRY OUT ALL WORKED OUT EXAMPLES AND REVISION QUESTIONS IN THE TEXT BOOK

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