Worked Solution
✓ VerifiedBRANCH ACCOUNTING - STOCK AND DEBTORS METHOD
Under the Stock and Debtors Method, the Head Office maintains complete accounts for the branch in its own books. Three principal accounts are prepared: Branch Stock Account, Branch Debtors Account, and Branch Profit & Loss Account.
CALCULATION OF COST OF GOODS SENT:
Goods are sent at 20% above cost. Therefore:
Gross value at selling price: ₹8,40,000
Less: Goods returned at selling price: ₹60,000
Net goods sent at selling price: ₹7,80,000
Cost of goods sent = ₹7,80,000 ÷ 1.20 = ₹6,50,000
CALCULATION OF COST OF GOODS RETURNED:
Goods returned at selling price: ₹60,000
Cost = ₹60,000 ÷ 1.20 = ₹50,000
BRANCH STOCK ACCOUNT (In Head Office Books)
Dr. | Particulars | Amount | Cr. | Particulars | Amount
--- | --- | --- | --- | --- | ---
| Opening Stock | 72,000 | | Goods Returned to HO | 50,000
| Goods from HO (at cost) | 6,50,000 | | Closing Stock | 1,25,000
| | | | To P&L (Cost of Goods Sold) | 5,47,000
| Total | 7,22,000 | | Total | 7,22,000
BRANCH DEBTORS ACCOUNT (In Head Office Books)
Dr. | Particulars | Amount | Cr. | Particulars | Amount
--- | --- | --- | --- | --- | ---
| Opening Balance | 90,000 | | Goods Returned by Customers | 14,000
| Credit Sales | 6,25,000 | | Discount Allowed | 7,500
| Bad debts Recovered | 1,000 | | Bad debts Written off | 3,500
| | | | Cash Received from Debtors | 4,38,000
| | | | Closing Balance | 2,53,000
| Total | 7,16,000 | | Total | 7,16,000
BRANCH PROFIT & LOSS ACCOUNT (In Head Office Books)
Dr. | Particulars | Amount | Cr. | Particulars | Amount
--- | --- | --- | --- | --- | ---
| Cost of Goods Sold | 5,47,000 | | Cash Sales | 1,45,000
| Rent, Rates & Taxes | 24,000 | | Credit Sales | 6,25,000
| Salaries & Wages | 48,000 | | |
| Office Expenses | 9,200 | | |
| Discount Allowed | 7,500 | | |
| Goods Returned by Customers | 14,000 | | |
| Bad debts (Net: ₹3,500 - ₹1,000) | 2,500 | | |
| Branch Profit | 1,17,800 | | |
| Total | 7,70,000 | | Total | 7,70,000
BRANCH PROFIT: ₹1,17,800
Write it like this
1The skeleton
- Convert ALL invoice figures to cost price BEFORE you touch any ledger — divide every goods figure by 1.20 right at the top of your answer; if your Stock Account opens at invoice price, the examiner's pen starts bleeding red from line one.
- Announce all three accounts upfront as column headers — write 'Branch Stock A/c', 'Branch Debtors A/c', 'Branch P&L A/c' as clear headings in sequence; examiners follow a mental checklist and each labelled account earns you entry marks before the numbers even start.
- Let COGS be the balancing figure in Branch Stock A/c, not a pre-calculated number — write 'To Branch P&L A/c (balancing figure)' explicitly; this signals you understand the method and protects you if your arithmetic is slightly off — the examiner still awards method marks.
- In Branch Debtors A/c, park 'Goods Returned by Customers' on the credit side — this reduces the debtor's obligation, not your sales; misplacing it to P&L directly as an expense is the single most common structural error in this account.
- Net the bad debts in Branch P&L as one line: 'Bad Debts (Net) ₹2,500' with '₹3,500 − ₹1,000' shown in brackets — don't create a separate credit entry for bad debts recovered in P&L; netting it shows examiner-level precision and avoids a layout penalty.
- Box or underline 'Branch Profit: ₹1,17,800' as your final line — the profit figure is the examiner's ultimate checkpoint; make it impossible to miss so they don't hunt for it and accidentally mark it absent.
2Examiner-rewarded phrases
3Common trap
The classic killer here is recording goods in Branch Stock A/c at invoice price (₹8,40,000) instead of cost (₹6,50,000) — that one error cascades into a wrong balancing COGS figure, wrong profit, and you drop marks across all three accounts simultaneously. Separately, don't put 'Bad Debts Recovered' as a credit in P&L — net it on the debit side; treating it as income is a Debtors A/c thinking mistake, not a P&L move.