Page 147 - Accountancy_F5

In the books of accounts of Msasa Ltd
Dr Branch inventory account: trading statement Cr

At selling At cost At selling At cost
Particulars price Particulars price
TZS TZS TZS TZS
FOR ONLINE READING ONLY
Balance b/d 5,000,000 3,750,000 Cash sales 37,000,000 37,000,000
remitted

Goods 40,000,000 30,000,000 Inventory loss/ 2,000,000 2,000,000
invoiced to deficiency
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Branch
Closing 6,000,000 4,500,000
inventory
(Balance c/d)

Gross profit 9,750,000

45,000,000 43,500,000 45,000,000 43,500,000

The following are the basic steps used to establish whether there is deficiency within
the tolerance rate:
1. Determine the allowed deficiency = 4% x 37,000,000 = 1,480,000
2. Identify the amount of the actual deficiency that is TZS 2,000,000
3. Compare the two that is (1) and (2) above, you will see that, the actual deficiency
is higher than the allowable deficiency by TZS 520,000. Thus, the company will
initiate an investigation to establish the reasons.

(b) Inventory and debtors’ method
This method is suitable when branches are permitted to make credit sales. There
are two ways the company can keep its records under inventory and debtors’ meth-
od. The first is the integrated approach and the second is the columnar approach.

Under the integrated approach, the head office is required to keep the following six
accounts about branch operations:
(i) Branch inventory account;
(ii) Branch accounts receivable;
(iii) Branch expenses account;

Student’s Book Form Five
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