3. CONCLUSION This Unit has described the accounting procedures followed in head office books to record branch transactions. These procedures should be applied when the branch does not itself maintain a ledger. The principal accounts to be maintained by head office are: o The branch stock control account, maintained at selling price. The balance on this account at any time represents the stock of unsold goods held by the branch; o The branch mark-up account, effectively the trading account for the branch; o The goods sent to branch account, maintained at cost price. This represents the amount of head office purchases forwarded to the branch.
56 The next Unit deals with branches which themselves maintain balancing ledgers. TEST YOU KNOWLEDGE 1.What is the formula for calculating a commission based on a percentage of the net profit after commission? 2.What accounts must be opened in head office books to record branch transactions? 3.What entries are made in the branch mark-up account? 4.At what value are goods shown in the goods sent to branch account? 5. What double entry is required if goods sold on credit by a branch are returned to head office? (2.15)
57 UNIT 6 BRANCH ACCOUNTS SECTION II: SEPARATE ENTITY OBJECTIVES At the end of this unit, you will be able to; Explain and open the necessary books to record head office and branch transactions Work out trading and profit and loss accounts Prepare balance sheets 1. THE BASIC APPROACH TO SEPARATE ENTITY BRANCH ACCOUNTS 1.1 Where a complete and independent set of records is maintained by the branch (or branches) trading and profit and loss accounts and balance sheets can be prepared for each branch and the head office. Accounts for the business as a whole can then be produced by combining the individual accounts. 1.2 In most cases, the head office sets up the branch, transferring to it necessary assets and recording the details in its own ledger through a branch current account. The branch, in opening its ledger, records the receipt of the assets through a head office current account. So, from the start of the operation, the branch current account balance in the head office balance sheet is an asset representing the investment in the net worth of the branch. In the branch balance sheet, the credit balance on the head office current account shows the proprietorship, the ‘capital’ of the branch. Example 1.3 Small, who had been trading successfully for a number of years from one location, acquired additional freehold premises at a cost of K30, 000. On 1 January 1991 the new branch was opened with Small’s friend Parts as manager. The following assets were transferred from the head office to the branch: K The freehold premises 30,000 Fixtures and fittings (original cost K5, 000) 4,000 Motor vehicle (original cost K6, 000) 4,500 Cash at bank 3,000
58 The Parts branch, which maintains independent records, installed additional fittings at a cost of K2, 000. Show the entries recording the above transactions in: (a) The branch current account in the head office ledger; (b) The branch ledger accounts.
- Summer '18
- Balance Sheet, international Accounting standards Board