Page 150 - Accountancy_F5

Dr Branch adjustment account (profit aspect) Cr

Particulars TZS Particulars TZS

Gross profit: statement of 9,250,000 Unrealised profit b/d 2,250,000
P/L
FOR ONLINE READING ONLY
Unrealised profit c/d 2,000,000 Branch inventory: 9,000,000
goods sent
11,250,000 11,250,000
LANGUAGE EDITING
As identified earlier, in this chapter, the entity can prepare the branch account in columnar
LANGUAGE EDITING
format to reflect the branch’s profit or loss account (Statement of profit or loss and other
comprehensive income). In a columnar format, one column on the debit side keeps the
value of goods sent from head office and opening inventory at selling price (which is
the invoice price) and the other column keeps their corresponding values at cost. The
column on the credit side which keeps records of the selling price is just for control
purposes and it is not part of the double-entry system.

Meanwhile, on the credit side, both columns are recorded in the selling price (invoice
price). On the debit side, the account comprises the opening balances of the inventory,
accounts receivable, and petty cash. It is also debited with the cost of goods sent to the
branch and expenses of the branch including those paid by the head office. On the other
side, it is credited with the amount remitted by the branch and the cost of goods returned
to the head office. At the end of the year, the value of the closing inventory (at cost),
outstanding accounts receivable and any petty cash balance are credited to this account
to ascertain the profit or loss made by the branch. Referring to the information provided
in example 5.3, the columnar branch account would be as follows: -

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