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CA Intermediate · Advanced Accounting · Accounting for Branches including Foreign Branches

At year end, the head office books of Aastha Ltd. show a debit balance of ₹5,00,000 in the Branch account, while the Jaipur branch books show a credit balance of ₹4,60,000 in the Head Office account. Investigation shows that goods of ₹30,000 sent by the head office have not yet reached the branch, and a remittance of ₹10,000 sent by the branch is not yet received by the head office. After adjusting both sets of books, what will be the agreed balance?

The agreed balance is ₹4,90,000. The head office credits the Branch account for ₹10,000 of cash in transit, reducing ₹5,00,000 to ₹4,90,000. The branch credits the Head Office account for ₹30,000 of goods in transit, raising ₹4,60,000 to ₹4,90,000, so the accounts reconcile.

  1. A₹4,90,000Correct
  2. B₹4,60,000
  3. C₹5,00,000
  4. D₹5,40,000

Explanation

The head office records the cash in transit: Cr Branch ₹10,000, so ₹5,00,000 becomes ₹4,90,000. The branch records goods in transit: Cr Head Office ₹30,000, so ₹4,60,000 becomes ₹4,90,000. Both now agree at ₹4,90,000. Adding the ₹10,000 instead of deducting it would give a wrong ₹5,10,000-type result.

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