BRANCH ACCOUNTS ACC 221 BAF 11 2023-24 By ANDEKIRWA MSUYA SOB Building Office 12 anmsuya@mzumbe.ac.tz Introduction + Abranch Is any establishment carrying on elther the same or substantially the same activity as that carried on by the head office of the company, + Concept of a branch means existence of a head office. Introduction + Firms open branches, mostly for economical reasons. * Most branches are retail outlets of the head office. * Head office institutes control measures at branches to prevent wastes and losses + Head office needs to know the performance of each branch, whether profit or loss was made Introduction * Classification of branche: + Dependent branches: Does not maintain a complete record of its transactions. Branch accounts are maintained at head office. + Independent branches: Maintains complete records of its transactions. Branch maintains its entire books of account under double entry system. Introduction * Foreign branches: maintain independent and complete record of business transactions in currency of the country in which they operates Accounting + Head office will account for transactions at the branch in one of two ways available: Either the HO maintains all records for branch transaction. This is sometimes called “centralized branch accounting” — Or the branch maintains its own books of account, sometimes called “decentralized accounting” and therefore making the branch somehow autonomous or independent. + Foreign branches are generally autonomousAccounting entries where HO maintains branch books * Note that at the time of dispatching goods to a branch, the HO will issue a memo informing the branch the quantity and value (invoice value) of the goods dispatched. This is for accountability purposes + This invoice value or transfer price could be: — Cost of the goods to the HO — Selling price instructed by HO to the branch — An amount between cost and selling price 1) When goods are dispatched to the branch: If invoiced at cost to the HO: DR. Branch Stock a/c CR. Goods sent to Branch a/c If invoiced at an amount other than cost to the H DR. Branch Stock a/c with invoice value CR. Goods Sent to Branch a/c with cost to HO CR. Branch Adjustment a/c with value-cost The branch adjustment a/c also called mark-up afc 2) When sales are made at the branch DR. Branch Debtors a/c (with selling price) CR. Branch Stock a/c 3) When Branch Debtors settle accounts DR. Branch Cash (with the amount received) CR. Branch Debtors 4) When Branch Debts are written off or discount allowed on branch debtors: DR. Branch Profit or loss CR. Branch Debtors a/c + 5) Remittances to H.O. DR. H.O. Cash a/c CR. Branch Cash a/c + 6) Expenses met by H.0. DR. Branch Expenses a/c CR. H.O. Cash a/c 7) When Branch returns goods to HO If the goods were invoiced at cost to HO DR. Goods sent to Branch a/c CR. Branch Stock a/c If invoiced at an amount other than cost to the HO: DR. Goods Sent to Branch a/c with the cost DR. Branch Adjustment a/c with the mark-up CR. Branch Stock a/c with the invoice price 6) When branch debtors return goods to branch DR. Branch Stock a/c CR. Branch Debtors a/c7) When branch debtors return goods directly to HO If the goods were invoiced at cost to the HO DR. Goods Sent to Branch a/c — at cost DR. Branch Stock a/c —at SP less cost CR. Branch Debtors a/c - at selling price If invoiced at an amount other than cost to the HO DR, Goods Sent to Branch a/c with the cost DR, Branch Adjustment a/c with Involce less cost DR, Branch Stock a/c with SP less Invoice CR. Branch Debtors a/c. with the selling price Close the branch stock a/c before the adjustment a/e If Branch Adjustment a/c was opened, Its balance will represent branch gross profit for the period ‘The opening branch stock a/c will have its corresponding mark up carried as a credit balance on Branch adjustment afc. Balance on Branch stock is profit if invoiced at cost Autonomous Branches + These maintain own books of account at branches + Branch maintains a HO Current a/c to record transactions with the HO and similarly, the HO maintains a Branch Current a/c to record dealings with the branch + Although the branch maintains accounting records, the HO will need to combine the results of the branch with that of HO Entries: Autonomous branches When goods are sent to branch: In HO books: DR. Branch Current a/c with invoice price CR. Goods Sent to Branch with invoice price In Branch books: DR. Goods from HO. with invoice price CR. HO Current a/c with invoice price Note invoice price is COST to the branch since own books are Kept by the branch. Hence goods sent is like a sale, and goods received resembles purchases Entries: Autonomous branches + When goods are returned by the Branch to HO. + In HO books: + Dr. Goods sent to Branch a/c + Cr. Branch Current a/c * In Branch books: + Dr. HO Current a/c * Cr. Goods from HO a/c Entries: Autonomous branches + When Branch expenses are paid by the Branch. + In HO books: No entry + In Branch books: * Dr. Expenses a/c * Cr. Bank or Cash a/cEntries: Autonomous branches * Branch expenses paid by HO. * In HO books: * Dr. Branch Current a/c + Cr. Bank or Cash a/c * In Branch books: + Dr. Expenses a/c + Cr HO Current a/c Entries: Autonomous branches Outside purchases made by the Branch. In HO books: No entry In Branch books: Dr. Purchases a/c Cr. Bank or Cash a/c Entries: Autonomous branches + Sales made by the Branch. * In HO books: No entry + In Branch books: * Dr. Cash or Debtor a/c * Cr Sales a/c Entries: Autonomous branches Collection from Debtors of the Branch received by HO. In HO books: Dr. Bank or Cash a/c Cr, Branch Current a/c In Branch books: Dr. HO Current a/c Cr. Sundry Debtors a/c Entries: Autonomous branches + Payments made by H.O. for purchases made by Branch + In HO books: * Dr. Branch Current a/c * Cr. Bank or Cash a/c * In Branch books: + Dr. Purchases or Sundry Creditors a/c * Cr H.O. Current a/c Entries: Autonomous branches Purchase of Asset by Branch. In HO books: No entry In Branch books: Dr. Sundry Assets a/c Cr. Bank or Creditors a/cEntries: Autonomous branches Remittances of fund by HO to Branch, In HO books: Dr, Branch Current a/c Cr. Bank a/c In Branch books: Dr, Bank a/c Cr. HO Current a/c Entries: Autonomous branches + Remittances of fund by Branch to HO. + In HO books: * Dr. Bank a/c * Cr, Branch Current a/c * In Branch book: + Dr, H.O. Current a/c + Cr, Bank a/c At year-end, the current accounts should be brought into agreement first before final accounts are prepared. Differences in the two reciprocal accounts will be caused by the time lapse between sending an item and the item being received at the other end, hence items in transit * Adjustments for items in transit will be effected in the HO books irrespective of the direction of the items in transit through the Branch Current account. Thus: DR. Goods in transit, Cash in transit, etc CR. Branch Current FINAL ACCOUNTS Current accounts should be tallied first Both HO and Branch prepare own accounts from respective ledgers It is necessary to prepare final accounts for the whole company as well ie HO and branch combined. Items are treated as follows: Treatment of specifics GGoodssent Addtosalesat TP n/a ofa Goodsreceived n/a ‘Addo purchases a/a [Goodsintransit ShowanSOFP at n/a ‘Show on SOFP . ‘and SOPL at cost oko ‘current years Expense n/a n/a provision on UP Balanceon _—showasareserve n/a nia provision on UP orlitlty on SOF StockstHO ——Showateost_ n/a Show at cost ‘Stockat Branch n/a ShowatT Showa cost to HO. Branch Current Showasnon aa nia ae curren assetPoints to note Closing stock for the whole company is made of: — Goods at HO — Goods at branch — Goods in transit Provision for Unrealized profit is required for: — Goods at the branch — Goods in transit Profit or loss made by the branch is transferred to HO statement of profit or loss thru’ current a/c Any errors or unrecorded transactions are dealt with in respective booksILLUSTRATION : centralized branch accounting Zed Ltd, which operates in Dar es Salaam has a branch in Morogoro. All supplies to Morogoro are received from Dar es Salaam. All books of account are maintained at the Dar es Salaam Office. All branch sales are on credit and have a uniform profit margin. The following information is made available: Balance 01-01-23 TZS Stock at the branch at cost 6,400,000 Stock at the branch at selling price 8,000,000 Branch debtors 2,000,000 Transactions during the year: Goods to Morogoro at cost 40,000,000 Credit Sales 45,000,000 Cash from customers 39,500,000 Returns by Customers of the branch - to Dar Office 1,000,000 - to Morogoro branch 3,000,000 Returns by branch to Dar at cost 1,200,000 Discount to branch customers 500,000 Other branch expenses 2,500,000 Stock on 31-12-23 at cost 11,200,000 Write the relevant ledger accounts to record the above information, ignoring the cash book and assuming: le The goods were invoiced to the branch at cost. 2. The goods were invoiced to the branch at selling price 3. The goods were invoiced to the branch at cost plus 10%.Meddy Ltd has its head office at Arusha and a branch at Morogoro. Goods are supplied by the head office at selling price, which is calculated by adding 25% to cost. The branch maintains its own accounting records but some expenses are paid by the head office. As at 31 March, 2022 the trial balances were as follows:- BIT: DIT: ‘Arusha Morogoro | Arusha Morogoro TZS°000 | TZS*000|__TZS*000 | TZS*000 Premises 32,510 5,800 Fixtures 7,890 3,400 (Ordinary Share Capital 50,000 Reserves 38,380 Stock 10,700 4,390 Purchases 120,620 ‘Goods sent to branch 62,490 Wages 34,988 Insurance 600 Sales 102,610 | _60,420 Goods from head office 59,990 Branch Current */. 18,200 Provision for — Unrealised 978 profits Miscellaneous expenses 3,852 680 Head office current a/c 15,188 Bank balance 26,682 228 Debtors and Creditors 9.846 620 11,430 265,888 | 75,608 265.888 | 75,608 The following additional information is available if required: i) Goods in transit at 31 March, 2022 amounted to TZS 2,500,000 at transfer price. It was subsequently ascertained that only TZS 2,000,000 (at transfer price) of these goods arrived. ii) Wages included TZS13,120,000 paid in respect of branch wages. iii) Closing stock at head office amounted to TZS 11,580,000. iv) The insurance premium includes cost for goods in transit to a maximum value of TZS. 2,000,000 (transfer price). Required: a) Prepare in columnar form, separate statements of profit or loss for head office, branch and combined head office and branch, together with respective statements of financial position, b) Show the head office current account as it would appear in the books of the branch and state what the balance of this account represents.