Page 156 - Accountancy_F5

Dr Branch Expenses Account Cr
Particulars TZS Particulars TZS

Salaries 1,800,000
Balance c/d:
Rent 1,200,000 (statement of P/L) 3,000,000
FOR ONLINE READING ONLY
3,000,000 3,000,000

Balance b/d 3,000,000
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Goods sent to a branch at cost plus
This approach is also known as wholesale pricing, whereby the head office transfers
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goods to branches at cost plus wholesale profit. As a result, branches are supposed
to realise profit equal to the difference between retail price and the wholesale price.
Meanwhile, the goods sent account will realise the amount of profit on goods sent to
branches equal to the profit margin added to arrive at the whole sale price. Meanwhile,
the branch inventory account or statement of profit or loss (in the trading aspect) is
debited by the value of opening inventory and the value of goods sent to the branch.
Correspondingly, the account is credited with branch sales at retailing price and closing
inventory at the wholesale price.

Branch Profit Margin = Sales – cost of goods sold

= Sales – (opening inventory + purchases – closing inventory)
= Sales – opening inventory – purchases + closing inventory
= (Sales + closing inventory) – (opening inventory + purchases at wholesale price)

Note:
Both opening inventory and closing inventory are at a wholesale price while purchases
reflect goods sent from the head office to the branch.

The returns of goods by branches
During business operations, especially under non-autonomous branches, there are two
possible pathways for returning goods. The first is when the branch returns some of the
goods to the head office and the second is when goods sold to customers are returned
either to the branch or straight to the head office. The accounting treatment of the goods
returned by the branch to the head office is to debit goods sent account and to credit
branch inventory account. Meanwhile, for the return of the goods by customers through
a branch, the accounting treatment will involve debiting the branch inventory accounts
and crediting branch debtors. If customers return goods straight to the head office, its

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