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

Kolkata Foods Ltd. keeps its Patna branch accounts under the debtors system, with goods sent at cost. Data for the year: opening stock Rs 40,000; opening debtors Rs 25,000; goods sent to branch Rs 2,00,000; cash sales Rs 80,000; credit sales Rs 1,50,000; cash received from debtors Rs 1,30,000; branch expenses paid by head office Rs 20,000; closing stock Rs 50,000. What is the profit of the branch for the year?

The branch profit is Rs 20,000. Sales of Rs 2,30,000 plus closing stock of Rs 50,000 give Rs 2,80,000. Deducting the cost of goods available (opening stock Rs 40,000 plus goods sent Rs 2,00,000) leaves a gross profit of Rs 40,000. Branch expenses of Rs 20,000 are then deducted.

  1. ARs 45,000
  2. BRs 20,000Correct
  3. CRs 40,000
  4. DRs 60,000

Explanation

Closing debtors = 25,000 + 1,50,000 − 1,30,000 = Rs 45,000. The debit side of the Branch Account before profit is 40,000 + 25,000 + 2,00,000 + 20,000 = Rs 2,85,000. The credit side is cash 80,000 + 1,30,000 = 2,10,000, plus closing stock 50,000 and closing debtors 45,000, total Rs 3,05,000. Profit = Rs 20,000. Check: sales of 2,30,000 plus closing stock of 50,000, less cost of 2,40,000 and expenses of 20,000, also gives Rs 20,000.

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