Question

6. A company based in Accra has a branch in Kumasi to which goods are supplied from the head office. All goods are charged out to this branch at cost plus 50% mark-up. The branch remits to the head office all cash received from customers. The following transactions took place at Kumasi branch during the year ended 31st December, 2009:
Stock – 1st January 2009: GH¢41,400
Goods received from head office at selling price: GH¢171,840
Cash sales: GH¢154,140
Goods returned from branch to head office at selling price: GH¢2,640
Cash received from debtors: GH¢6,120
Goods returned from credit customers to branch: GH¢1,060
Debtors – 1st December 2009: GH¢2,130
Stock – 31st December 2009 at selling price: GH¢2,100
You are required to prepare:
(a) Branch Stock Account;
(b) Goods Sent to Branch Account;
(c) Branch Debtors Account;
(d) Branch Adjustment Account (15 marks)

Accepted Answer

(a) BRANCH STOCK ACCOUNT (at selling price)
Dr: Stock b/d 41,400; Goods received from head office 171,840; Cash sales... ; Returns from debtors 1,060 = total 214,300
Cr: Cash sales 154,140; Credit sales 7,150; Goods returned to head office 2,640; Balance c/d 50,370 = total 214,300

(b) GOODS SENT TO BRANCH ACCOUNT
Dr: Returns from branch 2,130; Balance c/d (transfer to Trading A/c at cost) 112,800
Cr: Balance b/d 114,560
(showing goods sent to branch at cost, after removing the mark-up)

(c) BRANCH DEBTORS ACCOUNT
Dr: Balance b/d 2,130; Credit sales 53,410; Total 16,790 (per source figures)
Cr: Cash from debtors 6,120; Returns by branch 880; Balance c/d 13,000; Total 16,790

(d) BRANCH STOCK ADJUSTMENT ACCOUNT (showing the unrealised profit/mark-up element)
Dr: Returns by branch (mark-up element) 880; Gross profit (transfer) 12,800
Cr: Balance b/d 13,800; Goods sent to branch (mark-up element) 960
(Net effect: this account isolates the 50% mark-up loaded into branch stock, transferring the realised gross profit of GH¢12,800 to the head office Trading, Profit and Loss Account.)

WAEC Accounting 2013 Theory — Question 6

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