(i) Why goods are marked on invoice price by the head office while sending goods to the branch? (ii) Rama Ltd. has a branch at Delhi, that closes…
CA Intermediate · Advanced Accounting · PYQS · May 2026
(i) Why goods are marked on invoice price by the head office while sending goods to the branch? (ii) Rama Ltd. has a branch at Delhi, that closes its books of accounts every year on 31st March. This is an independent branch, which maintains comprehensive books of accounts for recording their transactions. You are required to show Journal Entries in the books of branch on 31st March, 2026 to rectify or adjust the following: (A) Head Office allocates - 2,70,000 to the Branch as Head Office Expenses, which have not yet been recorded by Branch. (B) Depreciation of Branch Fixed Assets, whose accounts are kept by Head Office in its books, not yet recorded in the Branch Books - 2,30,000. (C) Branch paid - 2,80,000 as salary to a Head Office manager the amount paid has been debited by the branch to its Salaries A/c. (D) Head Office collected - 2,60,000 directly from a Branch Customer on behalf of the Branch. The intimation of the fact has been received by the branch only now. It is not recorded in the branch books till now. (E) A remittance of 3,00,000 sent by the Branch has not yet been received by Head Office. (F) The Branch incurred Advertisement Expenses of 60,000 on behalf of another Branch. (G) Goods worth - 1,50,000 dispatched by the head office, but the branch has received the goods worth - 1,10,000 till date of reconciliation. Rest goods have been received subsequently by the branch. (H) Goods worth - 25,000 returned by the branch to head office yet not received by the head office.
Suggested Answer and Working Notes:
(a) (i) Goods are marked on invoice price to achieve the following objectives: (a) To keep secret from the branch manager, the cost price of the goods and profit made, so that the branch manager may not start a rival and competitive business with the concern; and (b) To have effective control on stock i.e. stock at any time must be equal to opening stock plus goods received from head office minus sales made at branch. (c) To dictate pricing policy to its branches, (d) As well as save work at branch because prices have already been decided. (ii) Books of Branch Journal Entries Sr. No Particulars Amount in ₹ Dr. Cr. (A) Expenses Account Dr. 2,70,000 To Head Office Account 2,70,000 (Being allocated expenses of Head Office recorded) (B) Depreciation A/c Dr. 2,30,000 To Head Office Account 2,30,000 (Being depreciation on assets recorded, accounts maintained by HO) (C) Head Office Account Dr. 2,80,000 To Salaries Account 2,80,000 (Being rectification of salary paid on behalf of Head Office) (D) Head Office Account Dr. 2,60,000 To Debtors Account 2,60,000 (Being adjustment entry for collection from Branch Debtors directly by Head Office) (E) No entry in Branch Books is required. (F) Head Office Account Dr. 60,000 To Cash Account 60,000 (Being expenditure incurred on account of other branch, now recorded in books) (G) Goods -in- transit Account Dr. 40,000 To Head Office Account 40,000 (Being goods sent by Head Office still in-transit) (H) No entry in Branch Books is required. Head office should make the Goods-in-Transit entry. Branch would have already made the entry while returning the goods to HO.
Topics: Accounting for Branches including foreign branch
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