MUBS: Makerere University Business School

Branch A/cs

BRANCH ACCOUNTS
Introduction
They arise where large business enterprises operate retail outlets away from their head office
in different localities of the country, region, continent or the world.
The main office of the business is its head office and other outlets are regarded as branches.
The head office procures the premises and physical resources needed for the branch to
become operational.
It also controls to some varying degrees, the operations of the branches.
The major aim of branch accounts is to exercise control over the branches and to avoid any
irregularities.
Branch profitability is ascertained, stock and cash controls are also initiated.
Accounting records and branches
There are 2 methods of maintaining accounting records of branches
1.
The head office keeps all the accounting records along with those of its operations.
2.
Branches individually maintain their own financial accounts and periodically submit certain
information from them to enable the accounts for the business as a whole to be prepared.
Usually a trial balance is submitted to the head office at the end of the year.
From the above, branch accounts can be categorized into two;
i)
Centrally controlled branches
ii)
Autonomous branches
Centrally controlled branches
Here, all the accounting work is maintained at the head office.
Stock is purchased centrally and distributed to the branches
All the affairs and trading policies of the branch are controlled by the head office.
Autonomous branches
Most of the accounting work is done at the branches.
Branches operate with some degree of independence.
Most stock is purchased locally.
Note: If the head office maintains all the accounts, they are meant to;
a)
Identify the level of sales and expenses for each branch and hence the profit made by
each branch.
b)
To record transactions showing charges in assets, liabilities and capital.
c)
To control any irregularities in sensitive assets like stock and cash
Accounting for centrally controlled branches
In this case goods sent to the branches may be recorded at cost or at selling price (Accounting for
goods sent to branches at cost is different from accounting for goods sent at the selling price).
The head office opens up the following accounts separately for each branch;
Branch stock A/C. Serves the purpose of branch trading A/C. It is also used to determine
the gross profit / loss of the branch
Branch debtors A/C. Records credit sales made by the branch.
Goods sent to branch A/C. Records the cost of goods sent from the head office to the
branch(s) during the period.
Branch cash A/C. Records cash transactions made at the branches
Branch expense A/C. Records all expenses incurred by the branch.
Branch profit & Loss A/c.
Other accounts as necessary.
BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Branch A/cs

Methods of accounting for centrally controlled branches.

Two bases are recognized on which the head office may transfer goods to its branches;
a) At the head office cost price.
b) At the head office selling price
Goods sent to branches at the head office cost price
Here the entries made in the branch stock Account are at cost and therefore the difference
between sales and the cost of goods sold (Balancing figure) represents branch gross
profit/loss.
The entries made in the goods sent to branch A/c are always at cost to determine the total cost
of goods sent to the branches during the period which is deducted from head office purchases
in the head office trading A/C at the end of the period.
Necessary Journal entries;
1. Goods sent to the branch during the period
Dr Branch stock A/c
Cr Goods sent to branch A/c (at cost price)
2. Sales made by the branch during the period
Dr Branch debtors A/c (credit sales)
Dr Branch Cash A/c (cash sales)
Cr Branch stock A/c (both credit &cash sales)
3. Returns;
(a) To the head office by the branch
Dr. Goods sent to Branch A/c (at cost price)
Cr. Branch stock A/c
(b)To the Branch by Branch Debtors
Dr .Branch stock A/c
Cr. Branch Debtors / cash / Bank A/c with the sales value of stock concerned.
4. Expenses incurred by the Branch
Dr Branch expenses A/c
Cr cash A/c (for expenses paid)
Cr Debtors A/c (for bad debts &discounts allowed)
Cr Branch stock A/c (for stock losses)
5. Cash remittances to the head office by the Branch
Dr Head office cash A/c
Cr Branch cash A/c
Illustration 1
Apex Ltd has its main office in Kampala and operates a centrally controlled branch in Hoima. All
goods sent to the branch are invoiced at cost. The following transactions are for Hoima branch for
the financial year ended 31 December, 2015.
Goods received from Head office
5,034,000
Returns to Head Office
84,000
Inventory 1st January, 2015
1,250,000
Cash sales paid into the bank
3,216,000
Credit sales
5,952,000
Discounts allowed to customers
290,000
BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Branch A/cs

Bad debts written off

436,000
Rent expense
216,000
Returns from customers
56,000
Wages and salaries
588,000
Debtors 1st January, 2015
2,950,000
Stock 31st December, 2016
1,190,000
Bank balance
2,000,000
General Expenses
126,000
Cheques received from debtors
5,032,000
Required;
Draw up necessary ledger accounts to record the above transactions in the books of the Apex Ltd
on behalf of Hoima branch.
Goods sent to branches at Head Office selling price
Whenever goods are invoiced to the branch at selling price, the profit element should be taken
into consideration.
Goods are charged to the branches at cost plus a predetermined profit percentage on cost
(Mark up) or on selling price (Margin).
This helps to show the profit expected from the sales made by the branch, enhances price and
stock control, as well as determining stock gains and losses.
The branch opening and closing stocks together with transfers to and from the head office
must be reduced to cost so as to determine the gross profit.
Accounts here are maintained using two approaches;
i)
The memorandum approach
ii)
Stock adjustment approach / adjustment approach/ (integrated system)
THE MEMORANDUM APPROACH
The branch stock A/C is maintained with two columns; One Column records transactions (Stock and transfers to and from the office) at cost. This
serves as the trading Account and will show the gross profit made by the branch while
The other (Memorandum Column) records transactions at selling price.
Any difference in the memorandum columns of the branch stock A/C represents stock
discrepancy which may be stock deficiency or stock gain.
Stock deficiency will be compared with the allowance for wastage or pilferage and if the actual
stock deficiency/wastage is more than the normal loss or allowed loss, investigations will be
carried out.
Stock losses can be categorized as follows;
- Stock lost or stolen in transit to the branch
- Normal stock loss at the branch perhaps arising from acceptable breakages or normal working
conditions.
- Abnormal stock losses arising from exceptional levels of stock breakages or pilferage.
- Cash lost or stolen at the branch.
- Authorized reductions by the head office in selling price of certain stock items.
Necessary Journal entries for stock losses
Stock lost or stolen in transit to the branch (Never under branch control).
Dr. Stock lost in transit A/c
Cr. Purchases or H/o Stock A/c with the cost of stock lost.
In case of insurance proceeds;
BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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Branch A/cs

Dr. Insurance precedes receivable A/c

Cr. Stock lost in transit A/c
Normal stock loss at the branch
Dr. Branch expense A/c at cost
Cr. Branch stock A/c (with the cost and selling price respectively)
Abnormal stock losses at the branch
Dr. Branch expense A/c at cost
Cr. Branch stock A/c (with the cost and selling price respectively)
Cash lost or stolen at the branch.
Dr. Branch expense A/c
Cr. Branch stock A/c with the amount of cash shortage which has reduced cash sales.
Necessary Journal entries for stock transfers, purchases, sales and returns;
Goods sent to the branch during the period
Dr Branch stock A/c (at cost and selling price respectively)
Cr Goods sent to branch A/c (at cost price)
Sales made by the branch during the period
Dr Branch debtors A/c (credit sales)
Dr Branch Cash A/c (cash sales)
Cr Branch stock A/c (both credit &cash sales and both in cost and selling price columns)
Returns;
(a) To the head office by the branch
Dr. Goods sent to Branch A/c (at cost price)
Cr. Branch stock A/c (at cost and selling price respectively)
(b)To the Branch by Branch Debtors
Dr .Branch stock A/c (at cost and selling price respectively)
Cr. Branch Debtors / cash / Bank A/c with the sales value of stock returned.
In case of local purchases by the branch.
Dr. Br. Stock A/c with the cost and selling price of local purchase
Cr cash /creditors A/c with the cost of local purchases.
Illustration 2
Wesbro ltd whose head office is located in Ntinda, operates a branch in Masaka. All goods
purchased by Head office are invoiced to the branch at cost plus 25%. All transactions are
recorded at Ntinda.
The following were for Masaka branch during the year ended 30th June2015. (Amounts in Ugx.)

Opening Stock at Invoice price

Debtors on 01/07/2014
Closing stock at Invoice price
Goods sent from Ntinda at invoice Price
Credit sales
Cash sales
Returns to Ntinda at invoice price
Bad debts written off
Receipts from debtors
Normal stock loss at invoice price
Rent paid
BBAII-AccII_December2016 Examinations

42,600,000
120,000,000
19,700,000
124,000,000
45,000,000
120,000,000
5,000,000
740,000
100,000,000
500,000
1,000,000
Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Branch A/cs

Telephone and interment

700,000
Trade facilitation
15,000,000
Fuel and maintenance of delivery trucks
25,000,000
Discount allowed to debtors
2,000,000
Returns by branch customers
24,000,000
Required; Prepare and close off necessary ledger accounts to account for Masaka Branch
transactions using Memorandum method.
Try other examples in books of reference on the course outline.
STOCK/INVENTORY ADJUSTMENT APPROACH
- Here the branch stock A/C is maintained at the selling price (cost plus a profit percentage) and
goods sent to branch A/C maintained at cost.
- For stocks and transfers to and from the Head office, the profit elements (Mark-up/Margins)
are transferred to stock adjustment A/c or Branch Mark-up/Margin A/c.
- The opening and closing balances of the branch. Stock adjustment A/c represents unrealized
profits b/f and c/f on opening and closing inventories respectively held by the branch.
- The branch stock adjustment A/C helps in determining the gross profit made by the branch
under this approach.
Journal entries for this approach
1. For goods sent to the branch (goods received from Head office).
Dr. Branch stock A/C the
(with the selling price)
Cr. Goods sent to Branch A/C (with the cost price)
Cr. Branch stock Adjust A/C (with the profit element)
2. For goods returned to the Head Office
Dr Goods sent to branch (with the cost price)
Dr. Branch stock Adjustment. A/C (with the profit element)
Cr Branch stock A/c (with the selling price)
3. Normal stock loss at the branch
Dr. Branch expense A/c at cost
Dr.Stock adjustment or Mark- up A/c (with the profit element)
Cr. Branch stock A/c (with the selling price)
4. Abnormal stock losses at the branch
Dr. Branch expense A/c at cost
Dr.Stock adjustment or Mark- up A/c (with the profit element)
Cr. Branch stock A/c (with the selling price)
5. Authorized reductions by the head office in selling price
Dr. Branch Mark-up
Cr. Branch stock A/c with the revision of the mark-up amount.
Illustration 3
ABC ltd whose head office is located Kampala, operate a branch in Mbale. All goods purchased by
Head office are invoiced to the branch at cost plus 331/3%. All transactions are recorded at
Kampala.
The following particulars are given of the transactions at the branch during the year ended 28 th
February 2016.
Stock on hand 1st March 2015 at Invoice price
$4,400
BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Branch A/cs

Debtors on 1st March 2015

$3,946
th
Stock on hand 28 February, 2016 at Invoice price
$3,948
Goods sent from Kampala during the year at invoice Price $24,800
Credit sales
$21,000
Cash sales
$24,000
Returns to Head office at invoice price
$1,000
Invoice value of goods stolen
$ 600
Bad debts written off
$148
Cash from debtors
$ 22,400
Normal loss at invoice price due to wastage
$100
Cash discount allowed to debtors
$428
Required
Using adjustment method, prepare and close off necessary ledger accounts for the above
transactions in the books of ABC Ltd.

Autonomous Branches

Most work is done by the branch Accountant who maintains a complete set of accounting
books.
- These branches operate with a high degree of independence
- Branches are allowed to purchase most of their stock from the local markets.
- The branch Accountant prepares books of A/cs, close off ledger A/cs at the end of the trading
period and extract a trial balance that is sent to the head office.
- At the head office, the Accountant incorporates the trial balance into the financial statements of
the whole business.
- The relationship between the head office and the branch is that of debtor- creditor although
the head office provides all necessary capital.
- The following need to be given emphasis when accounting for autonomous branches;
A. Current Accounts; they help to monitor the degree of debt between the two parties;
Branch current A/c; maintained in H/O books to record all transactions between the two parties.
The H/O treats the branch as a debtor and therefore this A/c must have a debit opening balance
and it is debited with the following;
Goods sent to branch
Expenses of branch paid by H/O
Branch profit.
The A/c is credited with the following;
Cash received from branch
Goods returned by branch
The balance c/d represents the amount the branch owes the Head office at the end of the year.
Head office current A/c; maintained in branch books to record all transactions between the two
parties.
The branch treats the H/O as a creditor and therefore this A/c should have a credit opening
balance. The A/c is debited with the following;
Cash sent to H/o
Goods returned to H/O
The A/c is credited with the following;
Expenses of branch paid by H/o
-

BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Branch A/cs

Goods received from H/O

Branch profit
The balance c/d represents the obligation the branch has towards the H/O at the year end.
B. Items in Transit
When the balance c/d on both A/cs fails to agree at the year end, the difference is brought
about by items in transit.
These include; cash, goods, and returns in transit.
These items belong to the H/O and should appear in the balance sheet as current assets and
at the same time credited to the branch current A/c in the H/O books regardless of their
direction to and from the H/O or Branch.
However, in case of stock items invoiced at selling prices, they should be disclosed at cost
price in the balance sheet by eliminating the unrealized profits.
Illustration 4
CFl ltd has its head office in Kampala and a branch in Kasese. The following data relates to its
financial year that ended 31st December, 2015 regarding the transactions between the head office
and the branch:Transaction

Head office Ugx000

Goods sent

3,000

BranchUgx000

Goods received

2,800

Cash sent to Head office

2,600

Cash received from the branch

2,500

Branch current account

500

Head office current account

500

Branch profit

800

Your required to prepare the head office and branch current Accounts and reconcile them
Illustration 5
Muyindi Shppers ltd operates a branch in Jinja with a head office in Kampala. The trial balance
prepared as at 31st December, 2015 revealed the following position. (Amounts in U.Shs000)
Details
Head Office
Branch
Dr.
Cr.
Dr.
Cr.
Share capital
520,000
Share premium
80,000
General reserves
60,000
Profit & Loss A/c
110,000
Debtors /Creditors
95,000
70,000
29,400
14,400
H/O Current A/c Balance
103,000
Good will at cost
150,000
BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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MUBS: Makerere University Business School

Land at cost
Furniture & Fittings, cost
Delivery Vans, cost
Acc. Depn : Furniture & Fittings
Delivery Vans
Inventory at Cost or Mark-up 1st January,2015
Bank balances
Cash Balances
Purchases/Sales
Goods sent to Branch
Branch Current A/c Balance
Financial Charges
Selling & Distribution expenses
Provision for unrealized profits on inventory
Administration expenses
Totals

Branch A/cs

350,000
100,000
90,000

20,000
40,000
20,200
7,200

97,000
29,800
2,000
510,000

459,400
308,000

120,000
10,800
21,000

32,800
30,800
5,200
1,000
297,000

399,400

1,000
4,200
2,800

62,000
1,637,600

1,637,600

21,000
549,600

549,600

Additional information;a) All goods sold by the branch are supplied from the head office at cost plus 10%. At 31st
December, 2015, goods at invoice price of U.Shs11, 000,000 were in transit to the branch.
b) The branch deposited U.Shs6, 000,000 on behalf of the head office in the local branch of the
head office bank on 31st December, 2015. No record of this transaction had been made in the
head office books.
c) Inventory at 31st December excluding goods in transit were values as follows;Head office at cost
U.Shs109, 000,000
Branch at Mark up
U.Shs 35,200,000
d) The Business its Fixed Assets at 10% per annum on straight line Basis.
Required
Prepare the companys income statement for the head office, branch and combined to show
the financial performance for the year ended 31st December, 2015.
ii. Prepare the companys combined statement of financial position as at 31st December 2015
iii. Reconcile the head office and branch current accounts as at 31st December,2015
i.

BBAII-AccII_December2016 Examinations

Fred Mutesasira _ Lecturer

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