Example 2
Here, the head office sends goods at invoice price, which includes a profit of 20% on
invoice price and all branch expenses paid by HO. To ascertain the branch profit,
adjustments will have to be made in branch A/c, which is a difference between
invoice price and cost price.
Opening Balance
Stock at Invoice Price: 20,000
Debtors: 4,000
Petty Cash: 200
Goods Sent to Branch at invoice Price: 40,000
Expenses Paid by HO
Rent: 1000
Salaries & Wages: 500
Other Expenses: 200
Cash Sales: 5000
Credit Sales: 40000
Cash Collected from Customer: 39000
Goods Return by Branch at Invoice Price: 1000
Closing Balance
Stock at Invoice Price: 25000
Debtors: 5000
Petty Cash: 200
Here, goods sent to the branch are at a selling price, which is cost plus 50%. The
branch remits all cash received to HO, and the HO pays branch expenses directly.
The branch only maintains stock and sales ledger. Rest all transactions HO holds in
its books.
Opening Stock at Selling Price = 15,000
Opening Debtors = 5,000
Goods Received from HO at Selling Price = 21,000
Cash Sales = 10,000
Credit Sales = 15,000
Goods Returned to HO at Selling Price = 3,000
Discount allowed to Debtors = 800
Bad Debts Written Off = 200
Expenses = 500
Closing Stock at Selling Price = 3,000
Activity 1: Dependent Branch with Markup on Cost
Scenario:
Head Office maintains all records for zothani Branch The branch sells goods at a
25% markup on cost. The following transactions occurred in January:
Goods sent to branch (cost price): R40,000
Sales (Cash + Credit): R60,000
Goods returned to Head Office: R4,000
Cash received from debtors: R10,000
Branch expenses paid by Head Office: R5,000
Normal loss of goods (cost price): R2,000
Closing Stock (at selling price): R15,000
Required:
Prepare the following Ledger Accounts:
1. Branch Stock Account
2. Branch Debtors Account
3. Branch Expenses Account
4. Branch Adjustment Account (to remove profit element in closing stock)
5. Branch Profit & Loss Account
Activity 2: Normal and Abnormal Loss with Markup on Cost
Scenario:
Branch B sells goods with a 33.33% markup on cost (i.e., profit is 25% on selling
price). The following transactions occurred:
Goods sent from Head Office (Cost Price): R50,000
Sales (Cash + Credit): R75,000
Normal loss of goods (Cost Price): R3,000
Abnormal loss of goods (Cost Price): R2,000 (Insurance claim received
R1,500)
Goods returned to Head Office: R5,000
Cash received from debtors: R20,000
Closing stock (at selling price): R18,000
Required:
Prepare the following Ledger Accounts:
1. Branch Stock Account
2. Branch Debtors Account
3. Branch Adjustment Account (for unrealized profit in closing stock)
4. Abnormal Loss Account
5. Branch Profit & Loss Account
Activity 3: Inter-Branch Transfers & Branch Adjustments
Scenario:
Branch C and Branch D both receive goods from the Head Office. The markup is
20% on cost.
Head Office sent goods to Branch C (Cost Price): R30,000
Head Office sent goods to Branch D (Cost Price): R25,000
Branch C transferred goods to Branch D (Cost Price): R5,000
Sales by Branch C: R40,000
Sales by Branch D: R35,000
Goods returned to Head Office from Branch D: R3,000
Expenses paid by Head Office: R8,000
Closing Stock at Branch C (Selling Price): R10,000
Closing Stock at Branch D (Selling Price): R12,000
Required:
Prepare the following Ledger Accounts:
1. Branch Stock Account (for both branches)
2. Branch Adjustment Account
3. Inter-Branch Transfer Account
4. Branch Profit & Loss Account
Activity 4: Reconciliation of Branch Account with Head Office
Scenario:
zothani Branch maintains a Branch Account in Head Office Books, and some
transactions are recorded differently.
Goods sent to Branch (Cost Price): R45,000
Sales (Cash + Credit): R70,000
Goods returned by customers: R4,000
Goods returned to Head Office: R6,000
Expenses paid by Head Office: R9,000
Cash remitted to Head Office: R50,000
Closing Debtors: R10,000
Required:
Prepare the following Ledger Accounts:
1. Branch Stock Account
2. Branch Debtors Account
3. Branch Current Account (in Head Office Books)
4. Branch Profit & Loss Account
5. Reconciliation Statement
INDEPENDENT BRANCHES
ABC Ltd. is a company that has its branch office in Chennai, India, and the following
is the transaction between its branch and head office during the year January 2018 –
to December 2019. In this example, the head office sends goods to the branch at the
cost price.
Opening Stock at Branch as on January 1, 2018, = 1,000
Debtors as on January 1, 2018, = 2,000
Goods Sent to Branch by Head Office = 10,000
Goods Returned by Branch to Head Office = 50
Cash Sales = 5,000
Credit Sales = 8,000
Cash Collected from Debtors = 7,000
Salaries and Wages = 60
Rent = 150
Sundry Expenses = 40
Closing Stock as of December 31, 2018 = 1,500
Debtors as of December 31, 2018 =1,000
Scenario:
A company, ABC Ltd, has a branch in Durban that operates independently. The
branch maintains its own set of books and prepares separate financial statements.
Below are transactions recorded in the Durban branch.
Transactions for the Durban Branch:
1. Opening Balances (Jan 1, 2024)
o Cash in hand: R10,000
o Bank balance: R50,000
o Inventory: R80,000
o Accounts receivable: R20,000
o Accounts payable: R30,000
2. January Transactions:
o (Jan 5) Goods purchased on credit from suppliers: R40,000
o (Jan 8) Cash sales: R15,000
o (Jan 10) Credit sales: R25,000
o (Jan 12) Received payment from debtors: R10,000
o (Jan 15) Paid creditors: R20,000
o (Jan 18) Expenses paid (Rent, Electricity, Salaries): R12,000
o (Jan 20) Goods returned to suppliers: R5,000
o (Jan 25) Goods transferred from Head Office: R30,000
o (Jan 28) Deposited cash into bank: R8,000
o (Jan 31) Closing stock: R100,000
Scenario: Independent Branch Accounting
Head Office: ABC Ltd
Branch: zothani Branch (Independent)
The zothani Branch maintains its own books and prepares its own financial
statements.
Transactions for zothani Branch (January 2025)
1. Jan 1 – Opening balances:
o Cash: R50,000
o Stock: R100,000
o Debtors: R30,000
o Creditors: R20,000
2. Jan 3 – Goods purchased on credit from suppliers, R40,000.
3. Jan 5 – Goods received from Head Office, R25,000.
4. Jan 8 – Goods sold for cash, R30,000.
5. Jan 10 – Goods sold on credit to customers, R45,000.
6. Jan 12 – Paid creditors R15,000 by cheque.
7. Jan 15 – Received cash from debtors, R25,000.
8. Jan 18 – Paid branch rent, R5,000.
9. Jan 22 – Returned damaged goods to supplier, R5,000.
10. Jan 25 – Salaries paid to branch employees, R12,000.
11. Jan 28 – Head Office remitted R10,000 to the branch for expenses.
12. Jan 30 – Closing stock at the branch, R90,000.
Scenario: Independent Branch Accounting
A company, Z Buthelezi Ltd, operates a branch in Durban. The branch maintains
its own books and prepares its own financial statements. Below are the transactions
for January 2025.
Transactions for Durban Branch (Independent Branch Method)
1. Jan 1: Head office transfers cash to the Durban branch: R50,000.
2. Jan 2: Durban branch purchases goods from suppliers on credit: R20,000.
3. Jan 5: The branch sells goods for R30,000 (R20,000 cash, R10,000 credit).
4. Jan 7: The branch pays rent: R5,000.
5. Jan 10: Goods returned by customers (sold on credit): R2,000.
6. Jan 12: Cash received from credit customers: R7,000.
7. Jan 15: Goods purchased for cash: R8,000.
8. Jan 18: Salaries paid to employees: R6,000.
9. Jan 20: Goods transferred from Head Office to Durban branch: R15,000.
10. Jan 22: Branch paid electricity expense: R3,500.
11. Jan 25: More sales: R25,000 (R15,000 cash, R10,000 credit).
12. Jan 27: Head office sends R10,000 for additional branch expenses.
13. Jan 28: Cash deposited into bank by branch: R20,000.
14. Jan 30: Goods returned to suppliers: R4,000.
15. Jan 31: Durban branch reports closing stock: R18,000.
Required:
1. Prepare the following ledger accounts:
o Branch Cash Account
o Branch Debtors Account
o Branch Purchases Account
o Branch Sales Account
o Branch Stock Account
o Branch Expenses Account
o Branch Creditors Account
o Head Office Account
2. Calculate:
o Gross Profit for the Durban branch.
o Net Profit after deducting expenses.
