BCOM 1st Year Branch Account Long Question Answer Study Material Notes

BCOM 1st Year Branch Account Long Question Answer Study Material Notes :- In this post is very useful for BCOM Students you will get full information related to BCOM Branch account, Dependent branch, Debtors System, Stock and debtor system final accounts system, Wholesale branch, Independent branch Foreign branch All Topic Study Material Question Answer Notes Available.

Section B


Q.1. What are the salient features of dependent branches?

Or Discuss about accounting treatment for dependent branches. 

Ans. Salient Features of Dependent Branches

Following are the salient features of dependent branches: 

1. These branches sell the goods supplied by H.O. and purchase of goods for sale from local source is prohibited. 

2. The branches do not perform accounting functions. Only the H.O. is involved, as it maintains complete record of transactions including the branches. 

3. Generally, sales are of cash basis only. But if the H.O. permits, credit sales are also done in certain restricted and specified transactions only. 

4. All branch expenses are paid by H.O. 

5. Branches are allowed to pay for incidental expenses, for which each branch maintains petty cash system, otherwise called imprest system. 

6. Branches remit the sales amount directly to H.O. daily.

Branches maintain memorandum records such as stock register.

8. Goods supplied to branches for sales are generally invoiced in an

hes for sales are generally invoiced in any of the following ways: 

(a) Cost Price: Cost to the H.O. 

(b) Selling Price: Cost to the B.O. 

(c) Cost price + Fixed percentage of profit (This is predetermine percentage of profit (This is predetermined and also known as load, markup or profit margin). 

Accounting Treatment for Dependent Branches 

In general, the H.O. perform accounting functions. Notwithstanding this fact, branches too maintain me of the following accounting records: Name of the accounting records and the purchase for which they are maintained: 

1. Stock Register: To keep a record of:

(a) All goods received from H.O. 

(b) All sales done at branch. 

(C) Goods returned to H.O.

(d) Stock in hand. 

2. Cash Book: To record:

(a) Cash received on sales.

(b) Cash remitted to H.O. 

3. Petty Cash Book:

(a) Petty cash received from the H.O. 

(b) Payment to meet incidental expenses.

(C) Petty cash in hand. 

4. Customer’s Ledger: To record credit sales to customers and details pertaining to it. 

5. Branch Returns: A record consisting of:

(a) Sales (Cash). 

(b) Sales (Credit). 

(C) Expenses. 

(d) Stock in hand.

[For periodical submission to H.O.] 

Q.2. What is accounting system in branch? What are the various methods of accounting system in branch account? Discuss any one of them.

Ans. Accounting System in Branch 

For dependent branches, the system of accounting is maintained in the H.O. only, but the method of accounting differs on account due to the following factors:

1. Size of the branch. 

2. Types and nature of transactions. 

3. Degree of control by the H.O. 

4. Accounting policy of the concerned establishment.

For accounting, the H.O.can maintain the account of the branch by applying any one of the following methods: 

1. Debtors method,

2. Stock and debtors method, 

3. Final account method,

4. Wholesale branch method. 

Debtors Method

Salient Features of Debtors Method of Accounting

Following are the main features of debtors methods of accounting:

1. Branch expenses paid by the branch manager out of cash in hand are not shown in the branch account because such expenses will reduce the branch cash at close.

2. If petty cash is maintained under imprest system, such actual expenses are met by the H.O. They are debited to branch account because the opening and closing balance of petty cash will appear on the debit and credit side of branch accounts respectively.

3. Depreciation: Depreciation on fixed asset is not shown in the branch account [asset is shown on the credit side after deduction of depreciation).

4. Bad Debts Discounts Allowed: These are not shown in the branch accounts (debtors at the end are shown on the credit side of the branch account after making adjustments for bad debts).

5. Sales: Only the remittances are entered on the credit side of the branch account under the head Cash/Bank A/c but cash sales/credit sales are not entered straight in the branch account.

6. Purchase of Fixed Asset by Branch: These are not shown in branch account because if it is purchased by branch for cash from its collection, remittance is reduced to that extent and if it is on credit basis, there is no reduction in remittance but the liability will figure on the debit side.

7. Sale of Fixed Assets: These do not appear in branch account because book value of fixed assets at the end is decreased and either the amount of remittances is increased or the debtors at the end are increased

Hence, the profit/loss is ascertained by a comparison of the branch assets and liabilities at the beginning and at end of trading period and having regard to remittances, goods are sent to branches and remittances are received from branch.

To ascertain any missing figure relating to stock/debtors, memorandum branch stock account or memorandum debtors account may be prepared.

Q.3. What are the rules for converting the trial balance received from a foreign branch into head office currency? Explain.(2014,16) 

Ans. A branch which is situated in a foreign country is called foreign branch. Foreign branches are invariably independent branches. The general bookkeeping of foreign branches will be similar to the independent branches but foreign branch will maintain its accounts in the currency of that country in which it is situated. Therefore, an additional problem in the incorporation of a foreign branch trial balance is that it is first to be converted in the currency of the country where head office is situated otherwise correct profit/loss of the branch cannot be calculated and consolidated balance sheet can not be prepared.

Before any such information used by the H.O., head office converts the balances of trial balance of a foreign branch. Rate of exchange of one country currency into other country currency is used for this purpose. Rate of exchange may be stable or fluctuating. The rules for converting various items of a foreign branch trial balance are as follows:

1. When the Rate of Exchange is Stable: If the rate of exchange between the country of the head office and that of branch is stable, all balances will be converted at that stable rate, except the following balances:

(a) Remittances to H.O.A/c, which will be converted at the actual rates at which they were effected. 

(b) Head office account, will be converted at the equivalent amount appearing in the branch account in the head office books. 

(c) Such branch assets, the accounts of which are maintained by H.O., will be converted same as head office account. 

2. When the Rate of Exchange is Fluctuating: When the rate of exchange is subject to frequent and rapid fluctuation, then the various items of the foreign branch trial balance should be converted according to their nature, at varying rates. H.O. uses the following four rates of exchange for this purpose: 

(a) Opening rate,

(b) Closing rate, 

(c) Average rate,

(d) Particular date rate. 

The rate prevailing on the first day of the accounting year is called ‘Opening rate while the rate prevailing on the last day of the accounting year is called ‘Closing rate’. The average of rates of the whole year is called ‘Average rate’. ‘Particular date rate indicates the rate of a particular date on which the transaction of acquiring a fixed asset or undertaking a liability took place.

Now, a question arises as to which item of the foreign branch trial balance should be converted at what rate. Following are the general rules regarding this: 

S.No. Items Rate of conversion
  Revenue items; items affecting the Trading and Profit & Loss Account as purchase sales, wages salary, discount, commission, etc, except: Opening stock (b) Closing stockDepreciationBad debts At the average rate       At the opening rate At the closing rate At the rate at which the concerned fixed assets has been converted.
  Current assets and current liabilities At the closing rate, i.e. the rate ruling at the date of balance sheet.
  Fixed assets as plant and machinery, building and furniture At the rate prevailing on the date of purchase of fixed assets, or (ii) at the rate prevailing on the date of special remittance made by head office for purchase of the assets, or (iii) At the opening rate, if the above two rates are not given.
  Fixed or long-term liabilities as debentures long-term loans, mortgage, etc. At the rate ruling on the date of undertaking the liabilities; or (ii) At the opening rate, if the above rate is not given.
  Remittances to and from head office At the actual rates at which the remittances were made or cashed.
  Goods to and from branch At the equivalent amount appearing in the head office books after adjusting the amount of goods in transit from head office to branch.
  Head office account At the amount equivalent appearing in the branch account in the head office books.

After conversion is completed, if the debit and credit column of the con balance do not agree, the difference is put on the shorter side against an account known as cx suspense account or ‘Difference in exchange account. If the amount of difference in exchange is insignificant, it is transferred to the debit or credit, as the case may be, of the Branch Profit & Loss Account but if this amount is significant or large, it will be shown as an asset or a liability in the balance sheet.

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