ACCOUNTING FOR BRANCHES
There are two main ways of accounting for branch transactions: either
HO maintains the financial accounts of all its branches along with those of its own operations
(centralized accounting).
Branches individually maintain their own financial accounts and periodically submit certain
information to HO to enable the preparation of accounts for business as a whole (decentralised
accounting).
In all of the above, three (3) different bases are recognized on which HO may transfer goods to its
branches:
a. At cost price (to HO)
b. At cost price plus a predetermined (fixed) percentage (mark –up).
c. At selling price (by branch)
Centralised Branch Accounting
Basis for Centralised Accounting
This kind of accounting is adopted by relatively large organisations with smaller branches
with respect to resources. For such accounting system to be efficient, the following practices
are important:
a. All receipts from sales (cash and credit) must be remitted to HO
b. All expenses must be settled by the HO
c. An imprest system must be kept between HO and the branches to cover minor branch
expenses
d. Preferably all inventories must be purchased by HO and issued to the branches.
Where direct branch purchases becomes necessary, the suppliers invoice must be sent
directly to the HO for payment
e. Documentations of branch credit sales, returns and so on must be forwarded to the
HO for reconciliation
On the basis of the above and other documentations, the HO often opens the following
accounts separately for each branch;
a. Branch stock (it either serves the purposes of a branch trading account or stock
control account);
b. Branch debtors (if branch sells goods on credit);
c. Branch Cash book;
d. Branch expense accounts for each expense;
e. Good sent to branches account;
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f. Other accounts as necessary
Illustration 1
The following relates to the recordings of transactions between, the branch and the head
office of Papa T Ltd.
Balances as at 1st February, 2000:
Branch stock (at cost to HO)
Branch debtors
Branch bank
¢000
3,150
1,355
910
Balances as at 28th February, 2000:
Branch stock (at cost to H0)
2,400
Transactions at branch during month:
Goods transferred from HO to branch (at cost to HO)
Goods transferred from branch to HO (at cost to HO)
Cash sales paid into bank
Credit sales
Goods returned to branch by credit customers (at selling price)
Cheques received from credit customers
Discounts allowed to credit customers
Bad debts written off
Cash transferred from branch bank to HO Bank Account
Rent and rates
Wages
General expenses
6,450
120
1,260
8,120
30
8,505
75
15
8,695
110
40
35
Amounts recorded on the transactions at HO on behalf and with the branch during month are
the same as above except that Salaries of branch staff paid by the head office is ¢375,000.
Pass the necessary entries in the ledgers of the HO assuming that goods are transferred to
branches at:

Cost;

Cost plus (assume cost plus 331/3%); and

Selling price (assume cost plus 20%)
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Decentralised (autonomous) Branch Accounting
Basis for Autonomous Accounting and Preparation of Current Account
Branches barley maintain full accounting records, thus this arrangement applies to large
branches where the scale of operations justifies the cost of operating an independent
accounting system. Under this mechanism, the branch send suitable records of its
transactions, i.e., assets and liabilities to the HO for amalgamation with those of other
branches and the HO so that combined results for the business as a while can be prepared.
Transactions between the branch and the HO are seen as that of the debtor and the creditor.
To that end, the concept of branch and HO current accounts arises. The current account will
record the transactions concerned with supplying resources to the branch or taking back
resources, including branch profit (loss). Therefore the current account shows the branch as a
debtor in the books of the HO, while the HO is shown as a creditor in the branch records.
This means that, the balances on the current accounts must agree to cancel out. However,
there may be some items (transactions) in transit. This then calls for the reconciliation of the
current accounts in the books of the HO.
Illustration 2
A firm with its HO in Accra opened a branch in Kumasi. The following transactions took
place in the first month:
a. Opened a bank account at Kumasi by transferring ¢10,000 from the Accra
account.
b. Leased a business premises in Kumasi, paying by cheque of ¢5,000 drawn on
the Accra bank account
c. The HO supplied a machine valued at ¢ 2,500 from its own machinery
d. Goods invoiced at cost to Kumasi during the month by the HO was ¢20,000
e. A cheque of ¢ 1,800 is paid to the HO by Kumasi as a general return of funds
f. Goods worth ¢500 were returned to the HO by the Kumasi branch.
Show the current accounts in the records of both the HO and the Branch.
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PRACTICE QUESTIONS
ACCOUNTING FOR BRANCHES
Question One
KUKUS Traders have their head office in Sampa and a branch in Japekrom. All purchases
are made by head office and sent to branch at cost plus 331/3 mark-up. A separate branch
account is kept. The branch maintains a sales ledger but all other accounts are kept at the
head office. The following information relates to April 2010:
April 1, 2010
GH¢
Branch stock, at invoice price
13,640
Branch debtors
18,220
Branch bank balance
1,850
During April 2010
Goods sent to branch, at invoice price
Goods returned by branch, at invoice price
Credit sales by branch
20,380
1,400
16,260
Cash sales by branch
1,880
Goods returned to branch by debtors
1,540
Wages and salaries paid out of branch bank account
780
Branch rent and rates
320
Cash received from branch debtors
Cash discount allowed to branch debtors
Branch bad debts written off
17,410
155
85
Cash transferred from branch bank account to
Head office bank account
15,000
The following additional information is available:
i.
ii.
Stock taking on April 30, 2010 reveal an apparent shortage of stock of invoice price
of GH¢180
Cash sales include sale of some stock which had to be sold at GH¢600 less than the
invoice price due to damaged state.
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iii.
A part of the head office expenses is charged to branch profit and loss every month.
For April 2010, it amounted to GH¢530.
Required:
Draw up the
a. Following ledger accounts in the books of head office:
i.
Goods sent to branch account
ii.
Branch stock account
iii. Branch mark-up account
iv.
Branch debtors account
v.
Branch expenses account
b. Branch profit and loss account.
Question Two
A Kumasi Trading firm has branch at Goaso. All purchases are made in Kumasi and
the goods sent to Goaso are invoiced at selling price which is 20% above cost. All
sales are on credit terms.
Branch expenses are paid by head office and all cash received by branch is remitted to
head office. All branch transactions are recorded in the head office books. The
following balances are in the HQ ledger at 1st January 2010
GH¢
Branch stock a/c
3,600
Branch stock adjustment a/c
600
Branch debtors
2,575
Transaction during the year 2010:
Goods sent to branch
32,460
Returns from branch to HQ
642
Branch sales
33,780
Returns from customers to branch
354
Cash received from branch debtors
32,848
Discount allowed to branch debtors
1,415
Branch expenses paid
4,027
The branch stock at 31/12/10 at invoice price to
the branch
1,962
There were no expenses outstanding at 31/12/10 and none had been paid in advance.
Required
Show the accounts relating to the branch in the ledger of the Head Office for the year
ended 31st December 2010
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Question Three
The following information relates to ABC Ltd which operates a number of retail branches.
Goods supplied to the branches are charged out at cost plus 331/3%. Each branch maintains
debtors’ ledger. The following information relates to the branch at Tema for the year to 31st
December 2010.
Credit Sale
Cash from debtors
Cash remitted to head office
Goods sent to branch
Cash discount allowed to debtors
Expenses of branch (paid by HQ)
Stock at 31st December 2009 (at transfer px)
Stock at 31st December 2010 (at transfer px)
Goods returned by branch
Reduction in selling prices authorized by
Area Manager
Debtors at 1/1/2010
Bad debts written off
GH¢
24,550
23,908
47,012
49,240
621
2,905
1,400
2,400
400
72
3,402
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Required
Record the transactions in the ledger and prepare a trading and profit and loss account
for the year to 31st December 2010.
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Question Four
Amankus Ltd's head office is in Accra, and it has a branch at Tema. The following trial
balances have been extracted from the respective books of account of both the head office
and the branch as at 30 June 2008.
Head Office (Accra)
Branch (Tema)
Debit
Credit
Debit
Credit
¢
¢
¢
¢
Administrative expenses
135,000
Branch current account
46,000
Stated ordinary share capital
9,000
300,000
Debtors and Creditors
15,000
Cash at bank and in hand
19,000
2,000
Distribution cost
30,000
12,000
Goods sent to branch
22,500
20,000
166,000
Head office current account
Plant and machinery (net book value)
24,000
383,000
38,000
Profit and loss account (at 1 July 2007
28,000
Provision for unrealized profit on stock
held by branch
1,500
Purchases and sales
225,000
350,000
Good from Head office
Stock at cost or cost to branch (at 1 July
2007)
5,000
215,000
154,000
15,000
868,000
9,000
868,000
244,000
244,000
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Additional information:
Stock at 30 June 2008 was valued as follows:
¢
Head office at cost
20,000
Branch at cost to branch
24,000
Goods in transit to branch at cost to branch
12,000
Goods purchased by the head office and sold to the branch are transferred at cost plus 20%.
At 30 June 2008 the branch had transferred ¢10,000 to the head office's bank account but as
at that date, no record had been made in the head office's books of account
Required:
Prepare in adjacent columns the following:
a. the head office, the branch, and the income statement for the year to 30 June 2008;
and
b. the head office, the branch, and the combined statement of financial position as at that
date.
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Question Five
Better Life Ltd operates retail stores in Kumasi (which is the head office) and Teshie (which is the branch) A trial
balance prepared as at 31 December 2003 showed the following position:
Better Life Ltd
Trial Balance as at 31 December 2003
Head Office
Branch
Debit
Credit
Debit
¢
¢
¢
Stated Capital
260,000
Capital Surplus
740,000
Income Surplus 1 Jan 2003
55,000
Debtors/ Creditors
47,500
35,000
14,700
Head office Current Account
Credit
¢
7,200
51,500
Goodwill at cost
75,000
Land and Buildings at cost
175,000
50,000
Fixtures and fittings at cost
50,000
20,000
Motor Vehicles at cost
45,000
Accumulated Depreciation: 31 Dec 2003
Fixtures
10,100
Motor Vehicles
3,600
6,400
Stock at cost or mark up (1 Jan. 2003)
48,500
15,400
Bank and cash
15,900
3,100
Purchases and sales
255,000
Administration expenses
25,500
9,500
10,500
2,100
2,500
1,000
Selling and Distribution
expenses
Depreciation: Fixtures
Motor vehicles
Prov. for unrealized profit on stocks (1/1/03)
229,700
148,500
199,700
3,000
1,400
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Branch current account
60,000
Professional expenses
5,400
Goods sent to branch
500
----------
154,000
------------
------------
--------------
818,800
818,800
264,800
264,800
======
=======
=======
=======
Additional Information
i)
All goods sold by the branch are supplied from head office at cost plus 10%. At 31st December
2003, goods to the value of ¢5,500 were in transit to the branch.
ii)
The branch deposited ¢3,000 on behalf of head office in the local branch of the company’s bankers
on 30th December 2003. No record of this transaction had been made in Head Office books
iii)
Stocks at 31 December 2003 excluding the goods in transit, were as follows:
Head office (at cost)
¢54,500
Branch (at mark up)
¢17,600
IV
Corporate profit tax rate applicable to Better Life Ltd is 30%
V
The stated capital of the company consists of 260,000 equity shares. The directors have proposed a
dividend of ¢0.2 per share.
Required:
From the information given, prepare in columnar form to show the results for Head Office, Branch and Combined
Entity,
a)
Income Statement for the year ended 31 December 2003, and
b)
A Statement of Financial position as at that date.
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