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CMA Intermediate · Financial Accounting · Branch (including Foreign Branch) and Departmental Accounts

Mehta Traders (head office, Mumbai) follows the Debtors System for its Pune branch. During the year: opening stock Rs 40,000, opening debtors Rs 25,000, goods sent to branch Rs 1,20,000, cash sales Rs 80,000, credit sales Rs 1,00,000, cash received from debtors Rs 85,000, closing stock Rs 50,000, and branch expenses paid by head office Rs 15,000. Ignoring other items, what is the branch profit?

The branch profit is Rs 55,000. Total debits to Branch Account are Rs 2,00,000, including opening balances, goods sent and expenses. Credits total Rs 2,55,000, made up of cash sales, collections from debtors, closing stock Rs 50,000 and closing debtors Rs 40,000. The difference is the profit.

  1. ARs 55,000Correct
  2. BRs 40,000
  3. CRs 70,000
  4. DRs 35,000

Explanation

Branch Account debits: opening stock 40,000 + opening debtors 25,000 + goods sent 1,20,000 + expenses 15,000 = 2,00,000. Credits: cash sales 80,000 + cash from debtors 85,000 + closing stock 50,000 + closing debtors (25,000+1,00,000-85,000 = 40,000) = 2,55,000. Profit = 2,55,000 - 2,00,000 = 55,000. Using total sales instead (1,80,000) plus stock 50,000 and 25,000 less... gives the same result.

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