CONTENTS
Unit No. Title Page No.
SEMESTER- II
MODULE -1
1. Accounting from Incomplete Records - I
(Single Entry System) 01
2. Accounting from Incomplete Records - II 12
MODULE -2
3. Consignment Account - I 33
4. Consignment Account - II 47
MODULE -3
5. Branch Accounts - I 71
6. Branch Accounts - II 89
MODULE -4
7. Fire Insurance Claim - I 114
8. Fire Insurance Claim - II 126
munotes.in
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Unit-1
ACCOUNTING FROM INCOMPLETE
RECORDS I
(SINGLE ENTRY SYSTEM )
Unit Structure :
1.0 Objectives
1.1 Introduction
1.2 Types of Single Entry
1.3 Incomplete formof Double Entry
1.4 Conversion Method
1.5 How tosearch for Required Information?
1.6 Prep aration of Final Accounts under Conversion of Single
Entry
1.7 Single Entry Illustration
1.8 Exercise
1.0OBJECTIVES
After studying the unit the students will be able to:
Understand the types of Single Entry.
Know the Advantages and disadvantages of Sing le Entry.
Explain the difference between Double entry and Single
entry.
Understand the Conversion Method.
Calculate the required figures.
1.1INTRODUCTION
The term ‘Single Entry’ refers to a method of maintaining the
accounts in a manner convenient to a business house. Single Entry
system does not follow the principles of double entry system. Under
this system businessman maintains / records only few accounts
which are absolutely essential. i.e. Personal accounts of debtors
and creditors under .ingle En try System .Real and Nominal
accounts are normally not maintained. The system of recording
transactions varies from person to person .E.g. Trader may recordmunotes.in
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amount receivable from customers and when he receives money
he either cancels the amount or circle the amount indirectly where
he noted credit sale.
E.g.Goods sold to Anand on credit
Anand 5 Kgs Sugar Rs. 150
10 Kgs Rice Rs. 500
Total Rs. 650
On receipt of the cash from Anand ,the above records may
be cancelled ORtheoriginal amount recorded ma y be ci rcled as
amount is received Rs. 650.On Receipt of cash no other entry is
passed. For credit purchases he may maintain file or folder for
unpaid invoice / bill on payment of amount, he may remove the bill /
invoice or just cancels o npayment . In simp le words ,Single Entry
System is incomplete form of account keeping.
Eric Kohler has defined “ Single Entry System i s a system
of book keeping in which as a rule only records of cash and of
personal accounts are maintained. It is always incomplete
double entry. The incompleteness varying under different
circumstances”
1.2TYPES OF SINGLE ENTRY
1.Pure Single Entry
Under this method entries are made directly in personal accounts of
debtor and creditor because the subsidiary books are not
maintained at all. In this type the duel aspect of each transaction is
ignored, hence it is called Pare Single Entry System.
2.Quasi Single Entry / Impure Double Entry :
Under this system businessman maintains some of the subsidiary
books like cash book, sales book, purchase s book etc. in addition
to the personal accounts of Debtors and Creditors. But they do not
maintain real and nominal account.
1.3INCOMPLETE FORM OF DOUBLE ENTRY
1.3.1 Introduction:
A small businessman who carries business himself and he
may not be familiar with the system of double entry and the
complex accounting principles, concepts etc. Such businessman
maintains records ofthe transaction by way of note withoutmunotes.in
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following accounting principles. He may record only one aspect or
partial records of same transaction and the same way he may
ignore some transactions. For E.g.Depreciation of assets, loss of
uninsured stock of goods by fire. Goods/cash withdrawn from
business etc. such accounting is known as Single Entry .
1.3.2 Special Features:
Following are special features of incomplete records.
1]Some transactions are recorded properly by giving effect for
both the receipt and payments.
2]Some transactions are not recorded at all eg. Goods / cash
withdrawn from business for personal use.
3]Some transaction sare recorded partially either Debit or Credit
aspect is recorded.
4]Some personal transactions are recorded wrongly E .g.
Insurance Premium paid isrecorded as business expenses.
5]Single Entry System is defective and unscientific and their form
isunsuitable for big business. Only Sole Trader and
Partnership Organisations may keep their books of accounts
under this system.
6]Under Single Entry System only Personal and Cash accounts
are maintained. Real and Nominal accounts are no t
maintained.
7]The Single Entry System of accounting varies from person to
person, from business to business.
8]No rigid rules and principles are followed under this system and
therefore the records suffer from all types of errors.
1.3.3 Advantages :
Following are rel ative advantages of this System
1] Simplicity: It is very simple method of accounting business
transactions. Any person can record transactions which he feels
necessary, the way he wants to record.
2] Requires no expertise: Maintenanc e of accounting records
does not require adequate knowledge of Book Keeping.
3] Economical: It is less costly than double entry book keeping
method.
4] Suitable for small concerns: It is most suitable for small
concerns having limited transaction and few assets and liabilities. It
is suitable as owners are having full control in business as regards
cash ,goods etc.munotes.in
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5] Speed: The business transactions are recorded immediately /
simultaneously.
6] To ascertain the profit or loss: Determination of Profit or Loss
is much easier.
1.3.4 Disadvantages / Defects:
Incomplete records suffer from the following defects: -
1] It is not based on recognized accounting principles.
2] It does not record all transactions. Some transactions record only
one effect. Insome transactions both effects are recorded and
some transactions are not recorded at all. Therefore these
accounting records are not accepted by Tax Authorities .
3] Arithmetical accuracy of accounts cannot be checked as trial
balance cannot be prepared.
4] Final Account i.e. Tradi ng and Profit and Loss Account and
Balance Sheet cannot be prepared as all transactions are not
recorded. Hence Gross Profit ,Net Profit OR Loss cannot be
ascertained. Balance Sheet cannot be prepared as Real Accounts
and other accounts arenot maintained.
5] This system gives scope for misappropriations and frauds
relating to cash /goods etc.
6] In th eabsence of real accounts ,it becomes difficult to know the
exact financial position of the business and valuation of goodwill on
sale of the business.
7] This system of account is inaccurate, crude, defective and
unscientific and hence not recognized under various statues of
Government, Bank etc.
1.3.5 Difference between Single Entry System and Double
Entry System:
Double En try System Single Entry System
1]Two aspects of each and every 1]Two aspects of each and every
transactions are recorded. transactions are not recorded.
2]It is a complete scientific and 2]It is incomplete and unscientific
satisfactory sys tem of book keeping . system of book keeping.munotes.in
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3]It is possible to prepare trial balance 3]It is not possible to prepare Trial
to verify the arithmetic balance to verify arithmetic accuracy
accuracy of transaction. of transaction.
4]There is no much scope for mis - 4]There is much scope for negligence,
appropriation and fraud as the misappropriation & fraud as
accounting is full proof. accounting is a faulty.
5]All the personal, re al and nominal 5]Only personal accounts of debtors &
accounts are maintained creditors and cash book are
maintained.
6]It is possible to prepare trading and 6]It is not possible to prepare trading
profit and loss account as accounts profit & loss A/cs as accounts of
of purchases, sales, returns & purchases, sales, Returns &
expenses are maintained. expenses are not maintained.
7]Balance sheet can be prepared 7]Statement of affairs can be prepared
on the basis of book values of basis of book values of some assets
assets and liabilities and capital accounts maintained and on
estimates & owners memory.
8]It is suitable for all types of suitability 8] It is suitable only for very small
business business whether small or large.
concerns.
9]It is complex, costly and requires 9]It is simple, economical and does not
expert knowledge and skill and need expert knowledge and detailed
elaborate books of accounts books of accounts
1.3.6 Ascertainment of Profit o rLoss under Single Entry
System .
When accounts are kept under Single Entry system, there are two
methods to ascertain Profit or Loss.
4.1Statement of Affairs Method [Not in Syllabus]
4.2 Conversion Method.
1.4CONVERSION METHOD
1.4.1Introduction:
In order to come over various limitations of Single Entry
System, it becomes necessary to prepare final account by
converting Single Entry into Double E ntry. So, it is possible forthe
trader to ascertain Gross Profits, Profit or Loss for the period, to
ascertain net worth of business .Conversion of single entry into
double entry involves the complete process of journalising, posting,
balancing, preparing Trial Balance and the Final accounts.
However, instead of preparing all ledger accounts this is done by
preparing control accounts. These control account sare to be
prepared within the scattered information which is equivalent tomunotes.in
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Trial Balance. If such information is inadequate or missing ,it should
be ascertain edfirst from various control accounts before p reparing
Final Accounts.
Thus ,conversion of single entry into double entry is nothing but
preparation of final accounts with or without trial balance.
1.4.2 Sources of information. Missing information can be
ascertain edfrom the following sources;
i] Cash book
ii] Opening control accounts of Sundry Debtors, Sundry Creditors,
Bills receivable, Bills payable.
iii] Opening Balances of Real Accounts.
1.4.3 Analysis of Ledger Account:
1.Sundry Debtors Account:
Sundry Debtors account is prepared to find out either the missing
credit sales or closing balance or cash received etc.
Sundry Debtors A/c
Dr Cr
To Opening balance of debtors
To credit sales if given (if not given
balancing figure is credit sales)
To Bills Receivable dishonouredBy Cash Received from Debtors
By Bills receivable received
By Returns Inwards
By Discount Allowed
By Bad Debts
By Transfers to Creditors
By Transfers to Creditors
By balance (closing) (either given
or balancing figure)
Note: Only on e amount of either credit sales or cash received or
closing balance can be missing and not all.
2.Sundry Creditors Account:
Sundry Creditors Account is prepared to find out either credit
purchases or cash paid or closing balance of sundry creditors.munotes.in
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Sundry Creditors A/c
DR CR
ToCash paid to Creditors By Opening Balance of Creditors
ToBill payable accepted By Credit Purchases (either given or
balancing figure)
ToDiscount received By Bills Payable Dishonoured.
ToReturns outward
ToTransfer from debtors
ToClosing balance of Creditors
(either given or balancing figure)
Note: Any one to the above item will be missing not all.
3.Bills Receivable Account:
This account is prepared to find out Acceptan cereceived or
Bills honored (cash receive d) or Bills dishonored or opening
balance or closing balances.
Bills Receivable A/c
DR CR
To opening balance (if given) By Cash Received (on presentation of Bills)
To Sundry Debtors (Bills received from BySundry Debtors (Bills returned
Debtors (if giv en) dishonoured. )
ByClosing Balance (balancing figure if not
given)
Note: Any one of the above item will be missing.
4.Bills Payable Account :
This account is prepared to find out bills payable accepted or
honored or opening balance or closing balance of bills payable
account.
Dr. Bills Payable Account CR.
To cash paid (on account of Bills Payable By Opening balance
To Sundry Creditors (Bills payable By Sundry Creditors (Bills accepted in
dishonoured) their favour)
To Closing Balance.
Note: 1]Any o ne of the above item will be missing.
2] First Bills Receivable and Bills Payable Account should b e
closed. Then ,Sundry Debtors and Sundry Creditors should be
closed.
5.Cash / Bank A/c.
It is prepared to find out opening or closing balances of cash in
hand or cash sales or cash purchases etc.munotes.in
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1.5HOW TO SEARCH FOR REQUIRED
INFORMATION ?
How to Search for Required Information?
Final
AccountsItems Where to find it out
A)Trading
Account (Debit
Side)1) Opening Stock
2) Purchases
Cash Purchases
Credit Purchases
3) Buying Expenses such
as Freight Carriage, Octroi,
Duty etc.
4)Manufacturing Expenses
5) Purchases ReturnsOpening Statement of Affairs
Payment side of Cash Book
Creditors Account
Payment side of Cash Book and / or
Adjustment
Payment side of Cash Book and / or
Adjustment
Sundry Creditors Account
B)Trading
Account
(Credit Side)1) Sales
2) Cash Sales
3)Credit Salesi) Receipt side of Cash Transaction
ii) Total Debtors Account
iii)Other Information
C) Gross Profit 1)Sales Returns
(to be Deducted from sales)
Gross ProfitOther Information or total Debtors Account
If gross profit % is given, ascertained from
Sales or Cost of goods sold, Closing Stock
may be balance figure on Trading A/c
Credit side. Pa yment side of Cash Book :
Adjustment and from other information
D) P & L A/c
(Debit Side )a) Administrative Expenses
b) Selling Expenses
c) Distribution Expenses
d) Other Expenses such as
Discount, Bad debts etc.
e) DepreciationTotal Debtors Acco unt and or other
information
Comparison of Opening & Closing value of
assets
From Trading Account
Receipt side of Cash Transactions
E) P & L A/c
(Credit Side)a) Gross Profit
b) Income received
c)Income receivable from
adjustment or income
receivedFrom Adjustments
From Receipt side of cash book or
opening statement of affairs
F)Balance
sheet
(Liabilities)a) Sundry Creditors & Bills
Payable
b) Opening Capital
c)Additional Capital
Introduceda) From closing Balance given or other
information, or
b) from Opening Statement of Affairs
c) Cash Book Receipt side
G)Balance
Sheet (Assets)1) Cash in hand and Bank
Balance
2) Sundry Debtors and Bills
,eceivable
3) Fixed Assets
Buildings, Machinery etc.
and Addition to themFrom Receipt side of cash book opening
or opening statement of affairs
a) From closing balance given or other
information or
b) by preparing debtors account & Bills
receivable account
From Opening statement of affairs or from
other informationmunotes.in
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1.6 PREPARATION OF FINAL ACCOUNTS UNDER
CONVERSION OF SINGLE ENTRY
Open the following Ledger Accounts.
1] Trading Account
2] Profit and Loss Account
3] Balance Sheet at the end of the Year
4] Sundry Debtors A/c
5] Sundry Creditors A/c
6] Bills receivable A/c if it is required.
7] Bills p ayable A/c if it is required.
8] Cash / Bank A/c (If Bank transactions are given separately two
columns Cash Book should be opened)
9] Statement of affairs at the beginning of the period.
After opening the above Account ,following steps should be
taken:
1] Transfer Opening Balances in Opening Statement of Affairs
and respective Ledger Account as ‘ To Opening Balance b/d ’
2] For transactions during Year. Pass Journal entry in mind and
post the same in Ledger A/c
3] Transfer closing balance in Balance Sh eet at the end of the
year and show as closing balance in respective Account.
4] Ascertain missing item and record the missing items
respectively. The missing item is ascertained from the
concerned Ledger Account from the information available.
Such Ledger would not tally due to missing items. Hence, the
balancing figure in the Ledger Account would indicate the
missing debit or credit item. Then record the missing item, tally
the concerned account and complete the double entry of all
transactions.
5] Lastl y prepare final accounts by using the balances of such
tallied accounts. Ascertained net profit from profit and loss
account and thereafter it should be added to capital account in
the closing balance sheet. The balance sheet at the end of the
year tallies .munotes.in
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1.7EXERCISE S
A.Essay -type Questions
1.Explain the term “ Single Entry System .” Enlist the limitations of
maintaining incomplete records.
2.Distinguish between Single Entry System and Double Entry
System.
3.Distinguish between Statement of Affairs and Balance Sheet.
4.Explain the term “ Conversion Method .” Enlist the important
stages involved in the preparation of final accounts under
Single Entry System .
5.Explain the accounting pr ocedure required to be taken to
convert single entry books i nto double entry when all the
subsidiary books are maintained.
B.Fill In the blank
1.Single Entry system does not follow the principles of ---------------
---------- system.
2.If Bank transactions are given separately -------- columns Cash
Book should be ope ned.
3.The Opening Balances are to be transferred to ----------------- and
respective Ledger Accounts.
4.The closing balance has been transferred in---------------------- at
the end of the year and show as closing balance in respective
Account.
5.Under conversion method credit purchases are ascertained by
preparing ---------------------------- A/c.
6. Ifcash sales orcash purchases are the missing figures they are
ascertained by preparing -------------------------- A/c.
7.----------------------- account is prepared to find out either the
missing credit sales or closing balance or cash received etc.
8. Cash paid on account of bills honored is ascertained by
preparing --------------------------- a/c.
9.Before closing the Sundry Debtors and Sundry Creditors A/c ------
-------------------- and------------------------ should be closed.
(Answers : 1. Double Entry, 2. Two, 3.Opening Statement of
Affairs, 4. Balance Sheet, 5. Total Creditors A/c, 6. Cash A /c, 7.
Sundry Debtors , 8.Bills Payable , 9.Bills Receivable A/c and
Bills Payable A/c)munotes.in
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C.State whether the following statements are True or False
1.In single entry system ,only one entry is made for all types
of transactions.
2.Single entry system is similar to double entry system.
3.Companies may follow single entry system ,
4.Small traders follow single entry system only.
5.Statement of affairs differs from balance sheet.
6.Trial balance can be prepared from the books kept under
single entry system.
7.In single entry both the aspect of the transaction are
recorded.
8.In single entry system usually personal accounts and cash
account are maintained.
(Answers: False: -1, 2, 3, 4, 6, 7. True: -5, 8.)
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Unit-2
ACCOUNTING FROM INCOMPLETE
RECORDS -II
Unit Structure:
2.0 Objectives
2.1 Practical Problems
2.2 Exercise
2.0OBJECTIVES
After studying the unit the students will be able to solve the
practical problems on single entry.
2.1PRACTICAL PROBLEMS
Illustration :1
Mr.Ketan carries on a small bus iness, but he does not
maintain complete set of account books. He banks all receipts
makes all payments by means of cheques. He maintains properly a
Cash Book ,Sales Ledger and Purchase Ledger. He also makes a
proper record of the assets and Liabilities as at the close of every
accounting year. From such records you are able to gather the
following facts.
Receipts for the year ended 31stDec, 20 17 RS. RS.
From Sundry Debtors 17,625
Cash Sales 4,125
Paid in by Ketan, the Proprietor 2,500 24,250
24,250 24,250
Payments made in the year ended 31stDec, 20 17.
New plant purchased 625
Drawings 1,500
Wages 6,725
Salaries 1,125
Interest paid 75
Telephone 125
Rent 1,200munotes.in
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Light and Power 475
Sundry Expenses 2,125
Sundry Creditors (purchases Ledger Account) 7,625
21,600
Assets and Liabilities
31.12.201 6 31.12.20 17
RS. RS.
Sundry Creditors 2,525 2,400
Sundry Debtors 3,750 6,125
Bank 625 ?
Stock 6,250 3,125
Plant 7,500 7,315
From the above data, prepare the Trading and Profit & Loss
Account for the year ended 31st December, 20 17 & the Balance
Sheet as on that date. [Adapted, C.A. Inter]
Solution:
Mr. Ketan
Trading and profit & Loss Account
Dr. For the year ended 31st December, 20 12. Cr.
Particulars Rs. Particulars Rs
To Opening Stock 6,250 By Sales: Cash 4,125
To Purchases(1) 7,500 Credit 20,000
To Wages 6,725 --------- 24,125
To Light & power 475 By Closing Stock 3,125
To Gross Profit C/d 6,300 ---------
27,250 27,250
----------
To Salaries 1,125 By Gross Profit 6,300
To Interest 75
ToTelephone 125
To Rent 1,200
To Sundry Expenses 2,125
To Depreciation(3) 810
To Net Profit transferred
to Capital Account 840
______ _____
6300 6,300
===== =====munotes.in
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Mr. Ketan
Balance Sheet
As on 31st Dec, 20 17
Liabilities RS Assets RS.
Sundry Creditors 2,400 Cash as Bank (4) 3,275
Capital Account
As on 1. 01.201715,600 Sundry Debtors 6,125
Add Introduced Stock 3,125
During the year 2,500 Plant : On 1 -1-17 7,500
Add Net Profit 840 Add Purchased
--------- During the year 625
18,940 --------
Less Drawings (1,500) 17,440 8,125
--------- Less Depreciation (810)
7,315
----------
19,840 19,840
Working Notes:
(1)Calculation of Credit Purchases:
Dr. Sundry Creditors Account Cr.
RS. RS.
To Cash Account 7,625 By Balance b/d 2,525
To Balance c/d 2,400 By Credit Purchases 7,500
( Bal. Fig.)
10,025 10,025
(2)Calculation of Credi tSales :
Dr. Sundry Debtors Account Cr.
RS. RS.
To Balance b/d 3,750 By Cash Account 17,625
To Credit Sales (Bal. Fig.) 20,000 By Balance c/d 6,125
23,750 23,750
----------- ----------
(3) Calcula tion of De preciation on Plant RS.
Book Value of Plant on 1.1.20 17 7,500
Add New Plant Purchased 625
8,125
Less : Book Value of Plant on 31.12. 17 7,315
Depreciation for the year 8 10munotes.in
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(4) Calculation of Balance at Bank Rs.
Balance as at 1.1. 17 625
Add Receipts for the year 24,250
24.875
Less Payments made during the year 21,600
Balance as at 31.12.20 17 3,275
(5) Statement of Affairs as on 1.1. 2017
RS. RS.
Sundry Creditors 2,525 Cash at Bank 625
Capital (Balancing fig) 15,600 Sundry Debtors 3,750
Stock 6,250
Plant 7,500
18,125 18,125
Illustration: 2
Mr. Sharma does not maintain his books according to the Double
Entry System. From the Following information prepare Profit and
Loss Account and Balance Sheet as at Jun e30,20 18.
(A) Assets and Liabilities:
Particulars 30.06.17 30.06.18
Rs. Rs.
Stock 19.800 1,13,200
Creditors 31,000 14,500
Debtors 1,18.000 1,25,000
Premises 90,000 90,000
Furniture 11,000 11,500
Air Conditioner 15,000 15,000
(B)Creditors as at 30.6.20 18include Rs.15,000 for the purchase of
AirCondition er.
(C)Cash Transactions.
Particulars RS.
Cash as at July 1, 2017 15,000
Collections from Customers 1,60,800
Payment to Creditors (Trade) 1,44,000
Rent, Rate, Taxes 11,500
Salaries 1,12,000
Sundry Expenses 18,000
Drawings by Sharma 30,000
Loans from Mrs. Mishap 23000
Capital Introduced 12000
Sundry Income 16500
Cash Sales 11,500
Cash Purchases 15,000
Paid to creditors for Air conditioner 15,000munotes.in
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(D)Bad Debts written off Rs.1 ,200.
Solution:
Trading and Prof it and Loss Account
Dr. Forthe year e nded 30June 20 17 Cr.
Particulars RS. Particulars Rs.
To Opening Stock 19, 800 By Sales :
To Purchases Cash 11,500
Cash 15,000 Credit (1) 1 ,69,000
Credit (2) 1,42,500 1,80,500
----------- 1,57,500 By Closing Stock 1,13,200
To Gross Profit c/d 1,16,400
2,93,700 2,93,700
To Salaries 1,12,000 By Gross Profit b/d 1,16,400
To Rent, Rates & Taxes 11,500 By Sundry Income 16,500
To Sundry Expenses 18,000 By Net Loss transferred
To Bad Debts 1,200 to Capital A/c 9,800
1,42,700 1,42,700
Balance Sheet
As on 30June 2017
Liabilities RS. Assets RS.
Mr. Sharma Capital A/c Premises 90,000
As at 1.7.20 16 (4) 2,37,800 Furniture 11,500
Add Capital Air Conditioner 15,000
Introduced 12,000 Stock 1,13,200
Debtors 1,25,000
2,49,800
Less Drawings (30,0 00)
-----------
2,19,800 -
Less : Loss for the
Year (9,800)
-------- 2,10,000
Loan from Mr. Mishap 23,000
Bank Overdraft Balance (3) 1,07,200
Sundry Cred itors 14,500
-----------
3,54,700 3,54,700munotes.in
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Working Notes:
1.Total Debtors Account:
Particulars RS. Particulars RS.
To Balanc e b/d By Bank 1,60, 800
To Credit Sales 1,18,000 By Bad Debts 1,200
(Balancing figure) 1,69,000 By Balance c/d 1,25,000
2,87,000 2,87,000
2.Total Cred itor A/C
To Bank 1,44,000 By Balance b/d 16,000
To Balance b/d 14,500 (RS.31,000 –15,000)
for Air Condition
By Credit Purchases 1,42,500
(Balancin g figure)
1,58,500 1,58,500
3.Bank Account
Dr Cr.
Particulars Rs. Particulars RS.
To Balance b/d 15,000 By Payment to Creditors
To Collection from Debtors 1,60,800 (trade) 1,44,000
To Sundry Income 16,500 By Rent Rate & Taxes 11,500
To Loan From Mr. Shula 23,000 By Salaries 1,12,000
To Capital Introduced 12,000 By Sundry Expenses 18,000
To Cash Sales 11,500 By Drawing 30,000
To Balance b/d By Cash Purchases 15,000
(Balancing figure 1,07,200 By payment to Creditor
Bank Overdraft) For Air Conditioner 15,000
By Purchase of Furniture
Cl. Bal. of Furniture 11,500
Less Open Bal: 11,000 500
------------ --------- -----------
3,46,000 3,46,000
4.Opening Balance Sheet as at 1 .7.2017.
Liabilities Rs Assets Rs.
Creditors: Premises 90,000
Trade cred. (31000 -15000) Furniture 11.000
16,000 Air Co nditioner 15,000
For air Conditioner 15,000 31,000 Stock 19,800
---------- Debtors 1,18,000
Capital ( Bal. fig. ) 2,37,800 Cash 15,000
2,68,80 0 2,68,800munotes.in
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Illustration: 3
From the following information ,prepare Trading and Profit and Loss
Account and the Balance Sheet as on 31stDec, 20 17.
Assets and Liabilities 1.1.20 17 31.12.20 17
Rs Rs.
Sundry Creditors 15,770 12,400
Outstanding Exp enses 600 330
Sundry Expenses 11,610 12,040
Stock 8,040 11.120
Cash in hand and at Bank 6,960 8,080
Sundry Debtors ? 17,870
Following further details of the transaction for the year 20 17are
available from the incomplete records.
Particulars RS. Particulars RS.
Cash and Discount Credited to Cash Purchases 1,030
Debtors 64,000 Sundry Assets Purchased 430
Returns From Debtors 1,450 & Paid by Cheques
Bad Debts 420 Personal Drawings by 3,180
Cash and credit Sales 71810 Cheques
Discount Allowed by Creditors 700 Cash deposited into the Bank 5,000
Returns to Creditors 400 Cash withdrawn from Bank 9,240
Capital Introduced -Paid in to Cash on hand 31.12. 17 1,200
Bank 8,500 Payments to Creditors by
Cash received from Debtors 62,500 Cheques 60,270
Paid into the Bank Expenses paid 9,570
(Mumbai University)
Solution
Bank Account
Dr. (To find out opening Bank Balance) Cr.
Particulars RS. Particulars RS.
To Opening Balance ( Bal.. fig) 4,000 By sundry Assets 430
To Sundry Debtors 62,500 By Drawing 3,180
To Capita l Brought 8,500 By Cash Withdrawn 9,240
To Cash Deposited 5,000 By Sundry Creditors 60,270
By Balance C/d 6,880
80,000 80,000munotes.in
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a) Closing Cash Balance and Bank Balance is Rs .8,080 of wh ich
Closing Cash Balance is Rs. 1,200. He nce Closing Bank Balan ce is
Rs.6,880.
b) With the help of opening Bank Balance, Cash in hand at the
beginning can be foun dout as under.
CASH Account
Dr. Cr.
Particulars RS. Particu lars RS.
To Opening Balance
(6,960 -4,000) 2,960 By Cash Purchases (given) 1,030
By Bank (Deposited) 5,000
To Bank (Drawn for Office use )9,240 By Expenses Paid in Cash 9,570
To Cash Sales (Balancing Figure 4,600 By C losing Balance (as given 1,200
16,800 16,800
d) Credit Sales should be ascertained by deducting Cash Sales
from total Sales. Thus
Particulars RS.
Cash and Credit Sales (as given) 71,810
Less Cash Sales ( as ascertained) 4,600
67,210
Dr. Total Creditors Account Cr.
Particulars RS. Particulars RS.
To Bank (Paid to By Opening Balance 15,770
Creditors by cheques) 60,270 (as given)
To Discount Received 700 By Credit Purchases 58,000
To Returns Outwards 400 (Balancing Fig.)
To Closing Balance (as 12,400 Given)
73,770 73,770
Dr. Total Debtors Account Cr.
Particulars RS. Particulars RS.
To Opening Balance By Bank (Cash received) 62,500
(Difference) 16,530 By Discount Allowed
To Credit Sales (64,000 -62,500) 1,500
(as found out) 67,210 By Returns Inwards 1,450
By Bad Debts 420
By Closing Balance 17,870
83,740 83 ,740munotes.in
20
Balance Sheet
As on 31.12. 16
Particulars RS. Particulars RS.
Sundry Creditors 15,770 Cash in hand (as per Casha/c 2,960
Outstanding Expenses 600 Cash at Bank 9as per Banka/c 4,000
Capital (Balancing fig.) 26,770 Sundr y Debtors 16,530
Sundry Assets (given 11,610
Stock in Hand (given) 8,040
43,140 43,140
Trading Account
Dr. For the year ending 31.12.20 17 Cr.
Particulars RS. Particulars RS.
To Opening Stock Purchases 8,040 By Sales
To Purchase Cash 4,600
Cash 1,030 Credit 67,210
Credi t 58,000 71,810
59,030 Less R eturns 1,450 70,360
Less Returns 400 58,630 By Closing Stock 11,120
To Gross Profit 14,810 ----------
---------
81,480. 81,480
====== ========
Profit and Loss Account
Dr. For the year ending 31.12.20 17 Cr.
Rs. Rs.
To Expenses 9,570 By Gross Profit 14,810
Less of 20 18 600 By Discount 700
-------
8,970
Add of 20 17 330
------ 9,300
To Discount 1,500
To Bad Debts 420
To Net Profit 4,290
---------- ------------
15,510 15,510
===== ======munotes.in
21
Balance Sheet
Ason 31.12.20 17
Liabilities Rs Assets Rs.
Opening Capital 26,770 Sundry Assets 11,610
Add Addi, Capital 8,500 AddPurchases of Assets 430 12,040
Add, Net Profit 4,290 ---------- ---------
Sundr y Debtors 17,870
Total 39,560 Closing Stock 11,120
Less Drawings 3,180 36,380 Cash at Bank 6,880
Outstanding Expenses 330 Cash in hand 1,200
Sundry Creditors 12,400
49,110 49,110
Illustration 4
You are given:
(a) The Balance Sheet of Jani at 31stDecember , 2017.
(b) The Cash Account for the year ended 31st December, 20 17.
(c) Additional Information.
You are required to prepare Trading and Profit and Loss
Account for the year ended 31st December 20 17and Balance
sheet as on that date .
Balance Sheet as on 31 -12-2017
Liabilities Rs Assets Rs.
Sundry Creditors 2,000 Cash 1,500
Bills Payable 4,000 Bills Receivable 2,000
Outstanding Wages 100 Sundry Debtors 2,500
Capital 9,900 Stock 2,000
Furniture 1,000
Plant and Machinery 7,000
16,000 16,000
===== =====
Cash A/c for the year ended 31 -12-2017
Receipts Rs. Payments Rs.
To Balance 1,500 By Wages 2,000
To Cash Sales 3,500 By Drawings 1,200
To Debtors 8,000 By Payment to Creditors 3,500
To Bills Receivable 7,500 By Bills Payable 6,000
BySundry Expenses 3,000
By Rent, Rates and Taxes 2,000
By Balance c/d 2,800
20,500 20,500munotes.in
22
Additional Information : Rs
Sundry Debtors 31 -12-2017 4,000
Sudry Creditors 31 -12-2017 2,200
Bills Receivable 31 -12-2017 4,500
Bill Payable 31 -12-2017 5,000
Stock 31 -12-2017 3,000
Bills Receivable dishonoured during the year 500
Bills payable dishonoured 200
Discount allowed 250
Bills Receivable Endorsed 1,500
Bills Receivable endorsed dishonored 200
Discount Received 650
Jani’s
Dr. Trading and Profit and Loss Cr.
Account for the year ended 31 -12-2017
Particulars Rs. Particulars Rs. Rs.
ToOpening Stock 2,000 By Sales
To Purchase [WN 2) 12,950 Cash 3,500
To Wages -Credit [WN] 4] 21,050 24,550
(2,000 –100[O/s for
P.Y.]) 1,900
To Gross Profit c/d 10,700 By Closing Stock 3,000
27,550 27,550
To Discount Allowed 250 By Gross Profit b/d 10,700
To Rent rates Taxes 2,000 By Discount received 650
To Sundry Expenses 3,000
To Net Profit tr
to Capital 6,100
11,350 11,350
Balance Sheet
As at 31 -12-2017
Liabilities Rs. Rs. Assets Rs.
Capital Account : Plant 7,000
Balance b/d (opening) 9,900 Furniture 1,000
Add : Net Profit 6,100 Stock 3,000
16,000 Sundry Deb tors 4,000
Less : Drawings 1,200 14,800 Bills Receivable 4,500
Sundry Creditors 2,500 Cash 2,800
Bills payable 5,000
22,300 22,300munotes.in
23
Working Notes:
Dr. (1) Bills Payable Acco unt Cr.
Particulars Rs. Particulars Rs.
To Cash 6,000 By Balance b/d 4,000
To Creditors (B/P Dishonoured) 200 By Sundry Creditors 7,200
To Balance c/d 5,000 ( Balancing figure)
11,200 11,200
(2) Dr (2) Sundry Creditors Account Cr.
Particulars Rs Particulars Rs.
To Cash 3,500 By Balance b/d 2,000
To Discoun 650 By Bills Payable (Dishonoured) 200
To Bills Payable [WN 1] 7,200 By Debtors (endorsed B/R
dishonoured) 200
To Bills Receivable (B.R. Endorsed) 1,500 ByCredit Purchases (bal.figure)12,950
To Balance c/d 2,500
15,350 15,350
(3) Dr. Bill s Receivable Account Cr.
Particulars Rs. Particulars Rs.
To Cash 3,500 By Balance b/d 2,000
To Discount 650 By Bills Payable (Dishonoured) 200
To Bills Payable [WN 1] 7,200 By Debtors (endorsed B/R
Dishonoured) 200
To Bills Receivable (B.R. Endorsed) 1,500 ByCredit Purchases (bal.figure)12,950
To Balance c/d 2,500
15,350 15,350
(4) Dr. Sundry Debtors Account Cr.
Particulars Rs. Particu lars Rs.
To Balance b/d 2,500 By Cash 8,000
To B/R (Dishnoured) 500 By Discount 250
To Creditors By Bills Receivable (WN 3) 12,000
(endorsed B/R dishonoured) 200 By Balance c/d 4,000
To Credit Sales (balancing figure 21,050
24,250 24,250munotes.in
24
Illustration 5
You are given : -(I) A Balance Sheet of Z as on 1st January 20 17
(II)A Summary of Cash Transactions for 20 17(III) A List of
remaining transactions for that year.
(I)
Liabilities Rs. Assets Rs. Rs.
Loans 12,000 Debtors 40,000
Creditors 27,000 Less : Provision 750 39,250
Bills Payable 1,500 Bills receivable 10,000
Capital 1,40,000 Stock 45,000
Plant 30,000
Buildings 55,000
Cash 1,250
1,80,500 1,80,500
(II)
Receipts Rs Payments Rs.
ToBalance on 1 -1-2008 1,250 By Payment to Creditors 1,10,000
To Amount received form debtors 1,72,000 By Cash Purchases 25,000
To Bills receivable 35,000 By Bills Payable 45,000
To Cash Sales 24,500 By Loans Paid 12,000
By Salaries 9,000
By Rent 6,000
By Interest 450
By General charges 750
By Drawings 15,500
By Balance on 31 -12-2008 9,050
2,32,750 2,32,750
(III)
Rs.
Total Purchases 2,15,000
Total Sales 2,35,000
Discount allowed to customers 1,250
Discount allowed by creditors 1,850
Bills receivable received during the year 60,000
Bill payable granted during the year 50,000
Stock 31st December 2017 90,000
Owing for outstanding liabilities 1,500
Commission earned by the firm but not received 1,200
Provide 5% reserve for doubtful debts and 2½% for disc ount on
debtors and depreciate buildings by 2½% and plant by 5% p.a. You
are required to prepare Trading and Profit and Loss Account and
Balance Sheet from the above. (Mar. 95, adapted )munotes.in
25
Solution :
Trading and Profit and Loss Account
Dr. For the year ended 31 -12-2017 Cr.
Particulars Rs. Rs Particulars Rs Rs.
To Opening Stock 45,000 By Sales :
To Purchases Cash 24,500
-Cash 25,000 –Credi t 2,10,500 2,35,000
-Credit 1,90,000 2,15,000 By Closing Stock 90,000
To Gross profit 65,000
3,25,000 3,25,000
To Discount Allowed 1,250 By Gross profit b/d 65,000
To Salaries 9,000 By Discount Received 1,850
To Ren 6,000 By Commission Receivable 1,200
To Interes 450
To General Charges 750
To Outstanding payable 1,500
To Reserve for Bad
debts (5% x 16,500) 825
To Reserve for
Discount on debtors 392
[(2.5% x (16,500 –825)]
To Depreciation :
-Building (2.55% x 55,000 ) 1,375
-Plant (5% x 30,000) 1,500 2,875
To Net Profit tfd. To Capita l 45,008
68,050 68,050
Balance Sheet
Ason31-12-2017
Liabilities Rs. Rs. Assets Rs. Rs.
Capital Account of X Building 55,000
Opening Balance 1,40,000 Less : Depreci ation 1,375 53,625
Add : Net Profit 45,008 Plant 30,000
1,85,008 Less : Depreciation 1,500 28,500
Less : Drawings 15,500 1,69,508 Closing Stock 90,000
Sundry Creditors [WN 2] 55,150 Sundry Debtors [WN 4] 16,500
Bills Payable [WN 1] 6,500Less : Reserve for Doubtful
Outstanding Liabilities 1,500 Debts 5% 825
15,675
Less : Reserve for
Discount on Debtors 2.5%3 92 15,283
Bills Receivable [WN 3] 35,000
Commission Receivable 1,200
Cash 9,050
2,32,658 2,32,658munotes.in
26
Working Notes :
(1) Ascertaining Closing Balance of B illsPayable A /c:
Dr. Bills Payable Account Cr.
Particulars Rs. Particulars Rs.
To Cash 45,000 By Balance b/d 1,500
ToBalance c/d (Balancing figure) 6,500 By Sundry Creditors 50,000
51,500 51,500
(2) Ascertaining Closing Balance of Creditors:
Dr. Sundry Creditors Account Cr.
Particulars Rs. Particulars Rs.
To Cash 1,10,000 By Balance b/d 27,000
To Discount Received 1,850 By Credit Purchases 1,90,000
To Bills Payable 50,000
ToBalance c/ d (Balancing figure) 55,150
2,17, 000 2,17,000
(3) Ascertaining Closing Balance of B .R.A/c :
Dr. Bills Receivable Account Cr .
Particulars Rs. Particulars Rs.
To Balance b/d 10,000 By Cash 35,000
To Sundry Debtors A/c 60,000 ByBalance c/d (balancing figure) 35,000
70,000 70,000
(4) Ascertaining Closing Balance of Debtors:
Dr. Sundry Debtors Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 39,250 By Cash 1,72,0 00
To Credit Sales 2,10,500 By Discount 1,250
By Bills Receivable 60,000
ByBalance c/d
(Balancing figure) 16,500
2,49,750 2,49,750munotes.in
27
Illustration 6
From the following particulars of Ada Teda Associates,
prepare Trading, Profit & Loss A/ c. for the year ended 31st
March,201 8and Balance sheet as on that date :
Assets and Liabilities 31stMarch
201731stMarch
2018
Rs. Rs.
Furniture 8000 10000
Stock 12000 15000
Debtors 25000 ?
Creditors 19000 24000
Outstanding General Expenses 1500 1800
Cash at Bank 12000 15600
Bills Receivables 12400 18550
Bills Payables 8400 7400
Receipts & Payments during the year
Particulars Rs.
Receipts from Debtors 105600
Payments to Creditors 64500
Carriage 2400
Paid for Printing & Stationary 12350
Paid for Salaries 6800
Paid for Rent 7200
Paid for General Expenses 9450
Commission received 24550
a)Goods costing Rs. 5,240 were used by the proprietor for his
personal use.
b)Goods are sold at a profit margin of 25% on sales.
c)Goods costing Rs.2 ,460 we re distributed as free samples.
d)Discount allowed to debtors Rs.480 and discount received from
creditors Rs.820.
e)Bills of exchange accepted in favour of creditors Rs.41,300 and
drawn on Debtors Rs.34,540.
f)Any difference in cash book should be assumed to be drawings
made or capital introduced by the proprietor.munotes.in
28
Solution:
In the books of Ada Teda Associates,
Opening Balance Sheet
As on 1stApril 20 17
Liabilities Rs. Assets Rs.
Capital 40500 Furniture 8000
Stock 12000
Creditors 19000 Debtors 25000
O/s General
Expenses1500 Cash at Bank 12000
Bills payable 8400 Bills Receivables 12400
69400 69400
Sundry Debtors A/c
Particulars Rs. Particulars Rs.
To Balance B/d 25000 By bank 105600
To credit sales 137760 By bills receivable 34540
By di scount allowed 480
By balance C/d 22140
162760 162760
Bills Receivable A/c
Particulars Rs. Particulars Rs.
To Balance B/d 12400 By bank 28390
To sundry debtors 34540
By balance C/d 18550
46940 46940
Sundry Creditors A/c
Particula rs Rs. Particulars Rs.
ToBank 64500 ByBalance b/d 19000
ToDiscount
Received820 ByCredit Purchases 111620
ToBills Payable 41300
To Balance c/d 24000
130620 130620munotes.in
29
Bills Payable A/c
Particulars Rs. Particulars Rs.
ToBank 42300 ByBalance b/d 8400
BySundry Creditors 41300
To Balance B/d 7400
49700 49700
Cash /Bank A/c
Particulars Rs. Particulars Rs.
To Balance B/d 12000 ByFurniture 2000
To Receipts from
Debtors105600 ByBills Payable 42300
To Commission
Receiv ed24550 By Payments to
Creditors64500
ToBills Receivable 28390 By Carriage 2400
By Printing & Stationary 12350
By Paid for Salaries 6800
By Paid for Rent 7200
By Paid for Gen.
Expenses9450
ByDrawings 7940
By balance C/d 15600
170540 170540
Trading Profit & Loss A/c
Dr. For the year ended 31 -03-2017 Cr.
Particulars Rs. Particulars Rs.
ToOpening Stock 12000 BySales 137760
ToPurchases 111620 ByGoods Withdr awn 5240
ToCarriage 2400 ByFree Samples 2460
ToGross Profit c/d 34440 ByClosing Stock 15000
160460 160460
To Printing &
Stationary12350 ByGross Profit b/d 34440
To Salaries 6800 ByDiscReceived 820
To Rent 7200 ByCommission Recd 24550
ToGen. Exp 9450
Add :clo.o/s 1800
Less op.o/s 1500) 9750munotes.in
30
ToAdvt 2460
ToDiscount Allowed 480
ToNet Profit c/d 20770
59810 59810
Balance Sheet
As on 31stMarch 201 7
Liabilities Rs. Assets Rs.
Capital 40500 Furniture 10000
AddNet Profit 20770 Stock 15000
Less Goods (5240) Debtors 22140
Less Drawing (7940) 48090 Cash at Bank 15600
Creditors 24000 Bills Receivables 18550
O/s General Expenses 1800
Bills payable 7400
81290 81290
2.2 EXERCISES
2.3.1 Practical Problems:
Q.1. Siddharth carries on a grocery business and does not keep his
books on a double entry basis. The following have been extracted
from his books
01.04.20 17 31.3. 2018
Rs Rs
Cash 1800 400
Bank 3,000 8,400
Credit balance in Debtors A/c 500 700
Debit balance in Creditors A/c 1,000 1,500
Debit balance in Debtors A/c 18,000 8,200
Credit balance in Creditors A/c 9,000 12,000
Bills payable 9,000 16,000
Bills receivable 18,000 16,000
Stock 60,000 25,000
Building 1,00,000 1,00,000munotes.in
31
The following information is available from his records:
Rs
Renewals of the bills of exchange during the year 5,000
Bills of exchange dishonoured 3,000
Bills of exchange discounted with bank 8,500
Interest on discount of Bills 4,000
Collection from Debtors by cash 5,000
Collection from debtors by cheque 95,000
Cash discount to debtors 2,000
Sales returns 18,000
Purchases b y cash 10,000
Purchases by cheque 30,000
Payment to creditors by cash 6,000
Payment to Creditors by cheque 80,000
Cash discount allowed by creditors 5,000
Purchase returns 7,000
Drawings by cash 2,000
Drawings by cheque 3,000
Capital introduced during the year 15,000
Bills payable honoured (net amount paid) 55,000
Discount as retirement of Bills payable 2,000
Expenses paid during th e year Rs
Salaries 12,000
Rent 9,000
Transport 6,000
Expenses outstanding at the year end: - Rs
Salaries 1,000
Transport 500
Prepare Trading &Profit & Loss A/c for the year ended 31stMarch,
2017& Balance sheet as on the date.
Q.2. Anilwho was carrying business, not maintaining proper books
of accounts. The following figures could, however, be ascertained
from incomplete records.
Particul ars 31.12.20 16 31.12.20 17
Rs Rs
Balance at bank 3,950 7,070
Stock in trade 22,550 20,360
Trade Debtors 22,500 ?
Trade Creditors 12,740
Furniture 15,000 ?
Motor Cycle 2,000 ?
Sales during 201 7amounted to Rs. 1,60,380 and purchase
Rs. 1,23,020munotes.in
32
Anal ysis of Cash Book 20 17
Paid for Credit Purchases 1,27,920 Electric Charges 2,500
Received for Credit Sales 1,45,480 Advertising & Pub 1,740
Further Capital brought in 10,000 Delivery charges 1,360
By A nil
Salaries paid 17,500 Motor cycle expenses 3,620
Rent paid for 6 months 6,000 Sundry Expenses 1,400
Ending 30th June 20 12
Taxes paid for 6 months 6,000 Drawing 5,520
upto 31.3. 12
On 31stDec. 20 17, there were outstanding liabilities for Electricity
charges Rs.520; advertisement Rs.260 and Sundry expenses Rs.
150. Provide 5% for doubtful Debts. A nilis to be charged with one
third of the expenses of the motor cycle.
From the above information, prepare a profit and loss A/c for the
year ended 31stDec. 20 17and Balance sheet on that date
munotes.in
33
Unit-3
CONSIGNMENT ACCOUNTS I
Unit Structure :
3.0 Objectives
3.1 Introduction
3.2 Salient Features of Consignment Sale
3.3 Meaning of Terms Involved in Consignment
3.4 Distinction between Consignment and Sale
3.5 Valuation of Closing Stock
3.6 Accounting Treatment
3.7 Exercises
3.0OBJECTIVES
After studying the unit the students will be able to:
Know the meaning and features of Consignment.
Understand the important term sinConsignment .
Distinguish between Consignment and Sales.
Record the transacti ons in the books of consignor and
consignee.
3.1INTRODUCTION
Manufacturers concentrate on m anufacturing goods and
product. Selling is a specialized activity. It requires expert
knowledge. Wholesalers are also interested in wholesale business .
They do no t wish to reach individual buyer and they do not have
such capacity. There are many ways in which goods can ultimately
reach the consumer. One of the ways to channelize the goods to
the ultimate consumer is consignment sale. In this type of sale ,a
busines sman ( the Consignor) sends goods to another businessman
(the Consignee) to be sold at the risk of the consignor. The
relationship between consignor and consignee is that of Principal
and Agent. The ownership of the goods remains with the consignor
until th e goods are sold. Goods which are sent to the consignee is
called as consignment.munotes.in
34
3.2SALIANT FEATURES OF CONSIGNMENT SALE
1.Goods are sent by the consignor to the consignee with an
objective to earn profit.
2.The relationship of consignor and consignee is that of Principal
and Agent.
3.Both the parties enter into an agreement of consignment sale.
The transactions between both the parties are governed by this
agreement. The law applicable is THE LAW OF AGENCY.
4.The property and ownership of the goods remains with the
consignee until the goods are sold.
5.The goods sent on consignment are at entire risk of the
consignor. The consignee is not responsible for any loss .
6.When goods are sent to the consignee, it is not sale, therefore ,
consignor can not prepare sale invoice. He prepares a document
called as proforma invoice.
7.When goods are sent to the consignee, it is not sale, therefore ,
consignor can not ask for price, therefore ,he asks for an
advance from the consignee.
8.The consignee is entitled to claim and ded uct all the reasonable
expenses incurred by him.
9.The consignee is responsible to pay to the consignor the
amounts realized from sale of goods.
10.The consignee agrees to sell goods for commission at agreed
rate and therefore ,he is entitled to deduct his co mmission due
from sale proceeds.
11.Any stock remaining unsold with the consignee belongs to the
consignor.
12.The profit or loss on sale of goods sent on consignment belongs
to the consignor .
3.3 MEANING O F TERMS INVOLVED IN
CONSIGNMENT
1.CONSIGNOR: The p erson who s ends the goods, owner of the
goods. He is the Principal .
2.CONSIGNEE: The person who receives the goods and who
sells the goods .He is the agent.munotes.in
35
3.CONSIGNMENT : The goods which are sent to be sold by the
consignee
4.COMMISION: The consignee sell s goods on behalf of the
consignor . The remuneration paid by the consignor for this
activity is commission. The consignee is supposed to sell the
goods at a fixed price, if he sells the goods at higher price then
he may be paid additional commission. This is known as
overriding commission. The consignee may sell goods for cash
or on credit terms. When goods are sold on credit there is a risk
of bad debts. This loss by bad debts is borne by the consignor.
Goods are sold on credit by the consignee. He knows t he local
market and the customers very well. The consignor, in such
case may allow additional commission to the consignee and
pass on the risk of bad debts to the consignee. This additional
commission is called as Del Credre C ommission. In such case ,
all the bad debts are to beborne by the consignee. Del Credre
Commission is calculated on total sales, unless otherwise
specified.
5.PROFORMA INVOICE :When goods are sent by the consignor,
he sends one document giving details of goods sent along with
it. This document is called as Proforma Invoice. Proforma
Invoice gives the particulars of goods sent as regards quantity,
weight, rate etc. Proforma Invoice may be prepared at cost price
or at a higher price, called as invoice price. When it is prepared
at invoice price ,the consignee does not know the profit made by
the consignor.munotes.in
36
Sample of Proforma Invoice.
PROFORMA INVOICE
VAIBHAV CYCLE TRADERS
125, S.V.S ROAD
DADAR MUMBAI
400 028
SENT TO : SURJEET CYCLES ,PUNE
DATE: 1STJune 2013
Sr.
No.Particulars Quantity MRP Amount
Rs.
1. BSA SLR 50 3200 1,60,000
2. Hero C LS 60 3600 2,16,000
Total 3,76,000
Less: 20%Trade Discount 75,200
3,00,800
E.& O.E.
Sd/-
(For Vaibhav CycleTraders)
6.ACCOUNT SALES: After the sales the consignee informs the
consignor about the sales made by him by sending him one
document called as Account Sales . This is a statement giving
details of quantity of goods sold, type of goods sold, expenses
incurred, commission due etc.munotes.in
37
Sample of Account Sales
ACCONUT SALES
SURJEET CYCLE S
424,KARVE ROAD
PUNE I
411005
SENT TO : VAIBHAV CYCLE TRADERS
DATE: 15THJULY 2013
RE: Consignment of 110 cycles received on 1stJune 2013
Sr.
No.Particulars of goods sold Quantity MRP Amount
Rs.
1. BSA SLR 40 3200 1,28,000
2. Hero CLS 40 3600 1,44,000
Total 2,72,000
Less: Expenses incurred 75,200
Unloading 2500
Freight 2000
Godown rent 3500
Commission @10% 7520 15,520
59,680
Less: Advance sent by DD on
5thJune 201325,000
Balance due remmited as per
Bank Draft enclosed34,680
E.& O.E.
Sd/-
(For Surjeet Cycle s)munotes.in
38
3.4DISTICTION BETWEEN CONSIGNMENT AND
SALE
Sr. No. Consignment Sale Normal Sale
1. The two parties involved are
consignor and consignee.The two parties involved are
seller and buyer.
2. The relation ship between
consignor and consignee is
that of principal and agent .The relationship is seller and
buyer both are principals and
there is no agent .
3. Consignor sends a proforma
invoice to the consignee .The seller sends a regular
invoice to the buyer.
4. Ownership of goods remains
with the consignor.Ownership of the goods is
transferred to the buyer
immediately.
5. Consignee is entitled to
commission on goods sold by
him.The buyer is not entitled to any
commission for goods sold.
6. Profit on goods sold belongs
to consignor.Profit on goods sold by the
buyer belongs to the buyer.
7. Risk of loss/dam age is borne
by consignorRisk of loss/dam age is borne by
buyer.
8. Consignee can return the
unsold goods to the
consign or.Buyer cannot return unsold
goods to the seller.
9. The governing law is Law of
Agency .The governing law is Sale of
Goods Act .
3.5VALUATION OF CLOSING STOCK
At the end of the year ,it may happen that consignee has not
sold all the goods which were sent to him for sale. These g oods
belong to the consignor and hence must be included in his closing
stock. As usual ,these goods are valued at cost or market value
whichever is lower. Valuation of these goods is done as follows:munotes.in
39
Particulars Rs. Rs.
Cost of goods to the consignor Xx
Add: Proportionate Expenses incurred by the
consignor
Carriage Xx
Freight Xx
Insurance Xx
Packing and Forwarding Xx Xx
Add: Proportionate Expenses incurred by the
consignee
Carriage Xx
Freight Xx
Octroi Xx
Unloading Xx
Clearing charges Xx
Any other direct expense Xx Xx
Xx
Only proportionate expenses are to be taken into a ccount
while valuing the closing stock .
(Total Expenses X Quantity of Goods in Closing Stock )/ Total
Quantity of Goods Received
Note: Following expenses are not to be considered in the above
Godown Rent.
Warehouse Charges.
Discount.
BadDebts.
Office and Administration Expenses.
Selling andDistribution Expenses .
CHECK YOUR PROGRESS
1.Define the following terms:
a.Consignment
b.Consigner
c.Consignee
d.Account Sale
e.Proforma Invoice
f.DelCreder Commission
g.Overriding Commission
2.Give the specimens of the following
a.Acco untSale
b.Proforma Invoice
3.Explain how t hevalue ofthe closing stock is ascertained ?munotes.in
40
3.6ACCOUNTING TREATMENT
A)In the books of consignor :
The consignor opens following accounts in his Ledger.
1.Consignment A/c.This is similar to Trading ,Profit And Loss A /c.
2.Consignee A/c (Type of the A/c is Personal A/c)
3.Goods Sent on Consignment A/c (Type of the A/c is Real A/c)
PROFORMA JOURNAL ENTRIES
Sr. No. Particulars Dr.Rs. CR. Rs.
1. Goods sent on consignment
Consignment A/ cDr. Xx
To Goods Sent on Consignment A/c Xx
2. Loading on goods sent
Goods Sent on Consignment A/c Dr. Xx
ToConsignment A/c Xx
3. Expenses incurred by the consignor
Consignment A/c Dr. Xx
ToCash A/c Xx
4. Advance received from the consignee
Bank A/c Dr. Xx
To Consignee A/c Xx
5. Bill drawn on consignee and accepted
by him
Bills Receivable A/c Dr. Xx
To Consignee A/c Xx
6. Discounting of the bill with the b ank
Bank A/c Dr. Xx
Consignment/ Discount A/c Dr. Xx
To Bill Receivable A/c xx
7. Goods returned by the consignee
Goods Sent on Consignment A/c Dr. xx
To Consignment A/c Xxmunotes.in
41
8. Expenses incurred by the consignee
Consignment A/c Dr. Xx
To Consignee A/c Xx
9. Cash sales made by the consignee
Consignee A/c Dr. Xx
To Consignment A/c Xx
10. Credit sales made by the consignee
Consignee A/c Dr. Xx
To Consignment A/c Xx
11. Amount co llected by the consignee from
debtors
NO ENTRY
12. Consignees commission
Consignee A/c Dr. Xx
To Consignment A/c Xx
13. Del Credre commission
Consignee A/c Dr. Xx
To Consignment A/c Xx
14. Bad debts
(if Del Credre commission is paid)
NO ENTRY
15. Bad debts (if no Del Credre)
Consignment A/c Dr. Xx
To Consignee A/c Xx
16. Amount remitted by consignee
Bank/ Bills Receivable A/c Dr. Xx
To C onsignee A/c Xx
17. Closing sock with consignee
Stock on Consignment A/c Dr. Xx
To Consignment A/c Xxmunotes.in
42
18. Loading on closing stock with
consignee
Consignment A/c Dr. Xx
To Stock Reserve Xx
19. Transfer of profit on Consignment
Consignment A/c Dr. Xx
To Profit and Loss A/c Xx
20. Transfer of Loss on Consignment
Profit and Loss A/c Dr. Xx
Consignment A/c Xx
21. Closing stock of goods sent on
consignment A/c
Goods sent on cons ignment A/c Dr. Xx
To Trading A/c Xx
B)In the books of consignee:
The consignor opens following accounts in his Ledger.
1.Consignor A/c (Type of the A/c is Personal A/c)
2.Consignment Debtors A/c (Type of the A/c is Personal A/c)
PROFORMA J OURNAL ENTRIES
Sr. No. Particulars Dr.Rs. Cr. Rs.
1. Goods received on consignment
NO ENTRY
2. Expenses incurred by the consignor
NO ENTRY
4. Advance paid to the consignor
Consignor A/c Dr. Xx
To Bank A/ c Xx
5. Bill drawn on consignor and accepted
byConsignee
Consignor A/c Dr. Xx
To Bills Payable A/c Xxmunotes.in
43
6. Discounting of the bill with the bank
NO ENTRY
7. Goods returned by the consignee
NO ENTRY
8. Expenses incurred by the consignee
Consignor A/c Dr. Xx
To Cash A/c Xx
9. Cash sales made by the consignee
CashA/c Dr. Xx
To Consign orA/c Xx
10. Credit sales made by the consignee
Consign ment Debtors A/c Dr. Xx
To Consign orA/c Xx
11. Amount collected by the consignee
from debtors
Cash A/c Dr. Xx
To Consignment Debtors A/c Xx
12. Consignees commission
Consignor A/c Dr. Xx
To Commission A/c Xx
13. Del Credre Commission
Consignor A/c Dr. Xx
To Commission A/c Xx
14. Bad debts
(if Del C redre Commission is paid)
Bad Debts A/c Dr. xx
To Consignment Debtors A/c Xx
15. Bad debts (if no Del Credre)
Consignor A/c Dr. Xx
To Consignment Debtors A/c Xxmunotes.in
44
16. Amount remitted by consignee
Consignor A/c Dr. Xx
ToBank A/c Xx
3.7EXERCISE
1.Distinguish between Consignment and Sales.
2.Describe how the consignment account is m aintained in the
books of (a)theconsignor (b) the consignee.
3. If a consignment remains partly unsold (closing stock or
unsold stock) at the time of balancing the books, how do you deal
with it?
4. Objective Type Questions :
MULTIPLE CHOICE QUESTIONS
1.Owner ship of goods sent on consign ment remains with
a.Consignee
b.Consignor
c.Both Consignor & Consignee
d.Either with consignee or consignor
2.Therelationship between Consignee and Consignor is that of
a.Agent and principal
b.Principal and Agent
c.Creditor and Debtor
d.Supplier and Customer
3.Consignee sells goods for consignor for
a.Profit
b.Commission
c.Friendship
d.Service to his customers
4.Expenses incurred by consignee on goods received on
consignment are borne by
a.Consignor
b.Consignee
c.Both of them in agreed ratio
d.Either by co nsignee or consignormunotes.in
45
5.Consignment A/c is prepared in the books of
a.Consignee
b.Consignor
c.Both Consignor & Consignee
d.Either in consignees books or in consignors books
6.An Account sales is
a.Prepared by the consignor
b.Sent by the consignee to the consignor
c.A ledge r account in the books of consignee
d.A ledger account in the books of consignee
7.Type of consignment account is
a.Real A/c
b.Nominal A/c
c.Personal A/c
d.Artificial A/c
8.Profit on sale of goods on consignment belongs to
a.Consignor
b.Consignee
c.Both of them in agree d ratio
d.Neither consignee nor consignor
9.Proforma invoice is sent by
a.Consignee to consignor
b.Consignor to consignee
c.Consignee to cash customers
d.Consignee to credit customer
10.Closing stock with consignee is shown in
a.The Balance Sheet of the consignor
b.TheBalance Sheet of the consignee
c.The Balance Sheet of the consignor and consignee both
d.The Balance Sheet of neither consignor nor consignee
11.Del Credre Commission is paid by consignor to consignee
a.On total sales
b.Oncredit sales only
c.On cash sales only
d.On cl osing stockmunotes.in
46
12.In the books of consignee the sale of goods is credited to:
(a). consignor's account
(b). sales account
(c). consignee's account
13.Goods sent on consignment should be debited by consignor
to:
(a). consignment account
(b). goods sent on consignm ent account
(c). consignors account
14.In the books of consignor ,the balance of the consignment
stock would be shown:
(a). as an asset in the balance sheet.
(b). as liability in the balance sheet.
(c). On the credit side of the trading account.
15.In the books of consignee, on dispatch of goods by the
consignor the entry would be:
(a). Consignment Account [Dr.]
ToGoods Sent onConsignment Account [Cr.]
(b).Consignment Account [Dr.]
ToConsignor Account [Cr.]
(c). No entry
16.Inthe books of consignee the expenses incurred by him on
consignment are debited to:
(a). consignment account
(b). cash account
(c). consignor's account
Answers: 1. b, 2. a, 3. b, 4. d, 5. b, 6. b, 7. b, 8. a, 9. b, 10. a, 11.b,
12. a,13. a, 14. a, 15. c, 16. c.
munotes.in
47
Unit-4
CONSIGNMENT II
Unit Structure :
4.0 Objectives
4.1 Solved Problems
4.2 Exercises
4.0OBJECTIVES
After studying the unit students will be able to solve the
practical problems on Consignment Accounting .
4.1SOLVED PROBLEMS
Illustration 1:
Ratanlal consigned 500 boxes of tea costing Rs.100 per box
to Sohanlal. Ratanlal paid freight Rs.500, insurance Rs.200 and
sundry expenses Rs.80. He drew a bill of exchange on Sohanlal
and received it from Sohanlal duly accepted for Rs.10,000. The bill
wasdiscounted with the Bank by giving a discount of Rs.100.
Mr. Sohanlal sold 300 boxes of tea at Rs.150. He paid
Rs.180 for carriage. He was entitled to a commission of 5% on total
sales. The balance due was sent by bank draft.
Give Consignment Account and Sohanlal’s Account in the
books of the consignor.munotes.in
48
Solution :
In the Books of Ratanlal
Consignment to Sohanlal A/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To Goods sent on
Consignment50,000 By Sohanlal (Sales) 45,000
To Bank By Con signment
Stock20,384
Freight 500
Insurance 200
Sundry Expenses 80 780
To Discount 100
To Sohanlal’s A/c
Carriage 180
Commission 2,250 2,430
To Profit & Loss A/c 12,074
65,384 65,384
In the Books of Ratanlal
Consignment to Sohanlal A/c
Dr. Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c 45,000 By Consignment A/c
Carriage 1 80
Commission 2,250 2,430
By Bills Receivable 10,000
By Bank A/c 32,570
45,000 45,000
Note :
1.Valuation of Stock : Rs.
200 boxes @ Rs.100 = 20,000
+ Proportionate Expenses 200 * 960 / 500 = 384
20,384munotes.in
49
Illustration 2:
The Mumbai Indian c onsign edto their Calcutta agent
Kolkatta Riders Rs.10,000 worth of goods, drawing a bill of
exchange on Calcutta for the amount. They pay freight and
Insurance on the consignment amounting to Rs.650. The goods
were received in Calcutta and in due course t he Account sales was
received as follows.
Account sales of 200 Bales of goods from Mumbai Indian.
Particulars Rs. Rs.
200Bales of goods sold at 14,000
Less : Consignee’s Expenses
Delivery Charges etc. 500
Godown rent 70
Insurance 80
Sundry Charges 18
Commission 700 1,368
12,632
Bill of Exchange 10,000
Balance Cash herewith 2,632
Enter these particulars in the Ledger of the consignor and
complete the transactions showing final profit or the loss on the
consignment. Show th e Consignor’s Account in the books of the
consignee.
Solution :
LEDGER OF MUMBAI INDIAN
Consignment Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Goods Sent on Consignment
A/c10,000 To Kolkatta Rider A/c (Sales) 14,000
ToCash / Bank A/c
(Mum bai Indian’s Expenses) 650
To Kolkatta Rider A/c (Expenses) 668
To Kolkatta Rider A/c (Comm.) 700
To Profit & Loss A/c (Profit) 1,982
14,000 14,000munotes.in
50
Kolkatta Rider’s Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Sales)14,000 By Bills Receivable
A/c (Advance)10,000
By Consignment A/c
(Expenses)668
By Consignment A/c
(Comm.)700
By Cash / Bank A/c
(Remittance)2,632
14,000 14,000
Goods sent on Consignment Account
Dr. Cr.
Particulars Rs. Particulars Rs.
ToTrading A/c
(transfer)10,000 By Consignment A/c 10,000
10,000 10,000
LEDGER OF KOLKATTA RIDER
Mumbai Indian’s Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Bills Payable A/c
(Advance)10,000 By Cash / Bank A/c
(Sales)14,000
To Cash / Bank A /c
(Expenses)668
To Commission A/c 700
To Cash / Bank A/c
(remittance)2,632
14,000 14,000
Illustration 3:
Sen & Co. of Calcutta consign goods costing Rs.25,000 to
their agent, Mustak of Mysore, on which they pay freight, Insurance
and char gesRs.1,500, drawing on him a bill of exchange at 90
days for Rs.20,000. They discount the bill at Mercantile Bank being
charged Rs.200thereof . After two months they received from their
agent an Account Sales informing that the entire consignment has
been sold for Rs.35,000, that expenses amounting to Rs.700 havemunotes.in
51
been incurred and showing as a deduction the agreed commission
of 2 percent on the amount realized. A draft on the Syndicate Bank
was enclosed for the balance due.
Show important ledger account s in the books of both the parties.
Solution :
LEDGER OF SEN & CO
Consignment Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Goods sent on Consignment A/c 25,000 By Mustak A/c (Sales) 35,000
To Cash / Bank A/c 1,500
To Bills Receivable A/c (Disc ount) 200
To Mustak A/c (Expenses & Comm.)
Expenses 700
Commission (2% × 35,000) 700 1,400
To Profit & Loss A/c (Profit) 6,900
35,000 35,000
Mustak’s Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Sales)35,000 By Bills Receivable A/c
(Advance)20,000
By Consignment A/c
(Expenses & Comm.)1,400
By Bank A/c (Remittance) 13,600
35,000 35,000
Goods sent on Consignment Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Trading A/c (transfer) 25,000 By Consignment A/c 25,000
25,000 25,000munotes.in
52
LEDGER OF MUSTAK
Sen & Co.’s Account
Dr. Cr.
Particulars Rs. Particulars Rs.
To Bills Payable A/c (Advance) 20,000 By Cash/Bank A/c (Sales) 35,000
To Cash / Bank A/c (Expenses) 700
To Commission A/c 700
To Bank A/c (remittance) 13,600
35,000 35,000
Illustration 4:
Jayesh of Mumbai consigned 100 pieces of shirting @
Rs.30 per piece to Bhavesh onconsignment basis. The consignee
is entitled to commission of 5% on sales. Jayesh spent its
Rs.1,000 for dispatching the goods. Bha vesh spent Rs. 300 for
freight & insurance. Jayesh draws a bill on Bhaves hRs.2,000
which is discounted for Rs. 1,960. All the goods were sold by
Bhavesh for Rs. 6,000.
Pass entries and show necessary Ledger A/c is in the books
of Consignor and Consignee.
Solution :
Journal Entries
In books of Jayesh (Consignor)
Date Particulars Debit
(Rs.)Credit
(Rs.)
1 Consignment A/c
To Goods Sent on Consignment A/c
(Being goods sent to Bhavesh on
consignment)Dr. 3,000
3,000
2 Consignment A/c
To Cash / Bank A/c
(Being expenses paid)Dr. 1,000
1,000
3 Bills Receivable A/c
To Bhav esh A/c
(Being bill draw on Bhavesh)Dr. 2,000
2,000
4 Bank A/c
Discount A/c
To Bill Receivable A/c
(Being bill Discounted)Dr. 1,960
40
2,000munotes.in
53
5 Bhavesh A/c
To Consignment A/c
(Being consignment sales by Bhavesh)Dr. 6,000
6,000
6 Consignment A/c
ToBhavesh A/c
(Being consignment expenses paid by
Bhavesh)Dr. 300
300
7 Consignment A/c
To Bhavesh A/c
(Being 5% commission on sales payable
to Bhavesh)Dr. 300
300
8 Consignment A/c
To Profit & Loss A/c
(Being consignment profit transferred to
P/L A/c )Dr. 1,400
1,400
9 Goods Sent on Consignment A/c
To Trading A/cDr. 3,000
3,000
Dr. Consignment A/c Cr.
Particulars Rs. Particulars Rs.
To Goods sent on
Consignment A/c3,000 By Bhavesh A/c
(Sales)6,000
To Cash Bank A/c
(Expens es)1,000
To Bhavesh A/c
(Expenses)300
To Bhavesh A/c
(Commission)300
To Profit & Loss A/c
(Profit)1,400
6,000 6,000munotes.in
54
Dr. Bhavesh A/c. Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c 6,000 By Bills Receivable A/c 2,000
By Consignment A/c
(Expenses)300
By Consignment A/c
(Commission)300
By Balance c/d (Unpaid) 3,400
6,000 6,000
Dr. Goods sent on Consignment A/c. Dr.
Particulars Rs. Particulars Rs.
To Trading A/c (bal. fig.) 3,000 By Consignment A/c 3,000
3,000 3,000
[Note: Discount is not considered as consignment expenses
therefore not debited to Consignment A/c. It will be debited to P/L
A/c.]
Journal Entries
In books of Bhavesh (Consignee)
Date Particulars L.
F.Debit
(Rs.)Credit
(Rs.)
(1) Jayesh A/c Dr. 2,000
To Bills Payable A/c 2,000
(Being bill accepted)
(2) Jayesh A/c Dr. 300
To Bank A/c 300
(Being consignment expenses paid)
(3) Bank A/c Dr. 6,000
To Jayesh A/c 6,000
(Being goods sold)
(4) Jayesh A/c Dr. 300
To Commission A/c 300
(Being commission @ 5% charged)munotes.in
55
Dr. Jayesh A/c Cr.
Particulars Rs. Partic ulars Rs.
To Bills Payable A/c 2,000 By Bank A/c 6,000
To Bank A/c 300
To Commission A/c 300
To Balance c/d 3,400
6,000 6,000
Illustration -5:
Amit of Bombay consigned 150 T.V. sets at Rs.4,000 each
to Nitin of Nagpur. He paid Rs.24,000 f or freight and Rs.4,000 for
wages. Nitin took delivery of the T.V. sets and paid Rs.40,000 for
octroi and other charges.
The consignee accepted a bill of Rs.1,60,000 drawn by the
Consignor for 3 months.
The Consignee sent an account sale after two mon ths
stating that he has sold 120 sets at Rs.6,000 each and paid
Rs.10,000 for advertisement and other selling expenses.
The Consignee is entitled to a commission of 4% on gross
sale proceeds.
Pass necessary journal entries in the books of Amit and
prepare Consignment A/c.
Solution:
Journal Entries in the Books of Amit
Date Particulars L.F. Debit
(Rs.)Credit
(Rs.)
? Consignment A/c Dr. 6,00,000
To Goods Sent on Consignment A/c 6,00,000
(Being goods sent to N itin of Nagpur
on Consignment)
? Consignment A/c Dr. 28,000
To Bank A/c 28,000
(Being freight and wages paid)
? Consignment A/c Dr. 40,000
To Nitin’s A/c 40,000
(Being expenses paid by Nitin)munotes.in
56
? Bills Receivable A/c Dr. 1,60,000
To Nitin’s A/c 1,60,000
(Being bill received duly accepted by
Nitin)
? Nitin’s A/c Dr. 7,20,000
To Consignment A/c 7,20,000
(Being goods sold by Nitin)
? Consignment A/c Dr. 10,000
To Nitin’s A/c 10,000
(Being advertisement expenses paid
by Nitin)
? Consignment A/c Dr. 28,800
To Nitin’s A/c 28,800
(Being commission @4% on
Rs.7,20,0 00)
? Consignment Stock A/c Dr. 1,33,600
To Consignment A/c 1,33,600
(Being unsold stock adjusted in the
Account). [Note 1]
? Consignment A/c Dr. 1,46,800
To Profit & Loss A/c 1,46,800
(Being profit transfe rred to Profit &
Loss A/c)
Note :
Valuation of Closing Stock : (30 sets unsold) Rs.
30 sets at Rs.4,000 1,20,000
Add : Proportionate expenses of Consignor 28,000 *30/150
5,600
Add : Proportionate non -recurring expenses of Consignee
40,000*30/150 8,000
1,33,600munotes.in
57
Dr. Consignment A/c Cr
.Particulars Rs. Particulars Rs.
To Goods sent on
Consignment A/c6,00,000 By Nitin’s A/c (Sales) 7,20,000
To Bank A/c (Expenses ) 28,000
To Nitin’s A/c (Expenses ) 40,000
To Nitin’s A/c
(Adv. & Selling exp.)10,000 By Consignment
Stock A/c1,33,600
To Nitin’s A/c (Commission) 28,800 (see working)
To Profit & Loss A/c (Profit) 1,46,80 0
8,53,600 8,53,600
Illustration 6:
On 15 January, 20 17Jamshed & Co. of Mumbai sent to
Mukherjee Co. of Kolkata 400 bicycles at an invoice price of
Rs.100 per bicycle to be sold on commission. Freight and
insurance were Rs.600. Accoun t sale was received from consignee
as follows 15thMarch –100 bicycles were sold @ Rs.145 on which
5% Commission and Rs.375 for expenses were deducted.
10thApril –150 bicycles were sold @ Rs.140 on which 5%
Commission and Rs.290 for expenses were dedu cted.
From the above information ,prepare Consignment A/c in the
books of Jamshed & Co. and close it on 30thApril, 20 13keeping in
mind that no sales were made afterwards. Also show accounts in
the books of Mukherjee & Co.
Solution:
LEDGER OF JAMSHED & CO.
Dr. Consignment Account Cr.
2017 Particulars Rs. 2017 Particulars Rs.
Jan. 15 To Goods sent on
Consignment A/c40,000 Mar. 15 By Mukherjee &
Co. A/c
(Sales)14.500
Jan. 15 To Cash/Bank A/c 600 Apr. 10 By Mukherjee &
Co. A/c
(Jamshed & (Sales) 21,000
Co.’s Expenses) Apri. 30 By Stock on
Mar, 15 To Mukherjee & Co.
A/c375 Consignment A/c 15,225
(Expenses)munotes.in
58
Mar. 15 To Mukherjee & Co.
A/c725
Apri. 10 To Mukherjee & Co.
A/c290
(Expenses)
Apri. 10 To Mukherjee & Co.
A/c1,050
(Comm.)
Apr. 30 To Profit & Loss A/c 7,685
(Profit)
50,725 50,725
Dr. Mukherjee & Co.’s Account Cr.
2017 Particulars Rs. 2017 Particulars Rs.
Mar. 15 To Consignment
A/c14,500 Mar. 15 By Consignment
A/c375
(Sales) (Expenses)
Apr. 10 To Consignment
A/c21,000 Mar. 15 By Consignment
A/c725
(Sales) (Comm.)
Apr. 10 By Consignment
A/c290
(Expenses)
Apr. 10 By Consignment
A/c1,050
(Comm.)
Apr. 30 By Balance c/d 33,060
35,500 35,500
Dr. Goods sent on Consignment Account Cr.
2017 Particulars Rs. 2017 Particulars Rs.
Apr. 30 To Trading A/c
(transfer)40,000 Jan. 15 By Consignment
A/c40,000
40,000 40,000munotes.in
59
LEDGER OF MUKHERJEE & CO.
Dr. Jamshed & Co.’ s Acc ount Cr.
2017 Particulars Rs. 2017 Particulars Rs.
Mar. 15 To Cash/Bank A/c
(Expenses)375 Mar15By Cash/Bank
A/c(Sales)14,500
Mar. 15 To Commission A/c 725 Apr10 By Cash/Bank
A/c(Sales)21,000
Apr. 10 To Cash/Bank A/c
(Expenses)290
Apr. 10 To Commission A/c 1,050
Apr. 30 To Balance c/d 33,060
35,500 35,500
Valuation of Closing Stock
Cost = 40,000
+Expenses = 600
------------
40,600
Cl. St. 150 sets out of total 400 s ent=40,600 *150 / 400
=Rs.15,225
Illustration 7:
Keshav of Kanpur consigned 150 T.V., sets at Rs.4,000
each to Kamalakar of Kolhapur. He paid Rs.24,000/ -for freight and
Rs.4,000/ -for wages. Kamlakar took delivery of T.V. sets &paid
Rs.40,000 for customs duties and other charges.
The Consignee accepted a bill of Rs.1,60,000 drawn by the
Consignor for 3 months. The Consignee sent an Account Sales
after two months stating that he has sold 120 sets at Rs.6,000
each. He had paidRs.10,000 for advertisement and other selling
expenses. The Consignee is entitled to a commission of 4% of
gross sale proceeds. Consignment stock should be valued after
taking Consignor’s expenses and customs duty into consideration.
Prepare Consignm ent Account and Consignee’s Account in the
books of the Consignor.munotes.in
60
Solution :
In the books of Keshav of Kanpur.
Dr. Consignment Account. Cr.
Particulars Rs. Particulars Rs.
To Good sent on Consignment
A/c(150 x 4,000)6,00,000 By Kamalka r’s A/c (Sales)
(120 x 6,000)7,20,000
To Cash A/c: By Stock on Consignment A/c
Freight 24,000 (Cost 30 x 4,000 )=1,20,000
Wages 4,000 28,000 Expenses
30/150 x68,000
To Kamalkar’s A/c
(Custom duties)40,000 13,600
1,33,600
To Kamalkar’s A/c
(Advertisement & Other
Expenses)10,000
To Kamalakar’s A/c
(Commission 4%) 28,800
To P/L Loss A/c (Profit) 1,46,800
8,53,600 8,53,600
Dr. Kamalkar’s Account. Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Sales )7,20,000 By Consignment A/c
(Customs duty)40,000
By Bills Receivable A/c 1,60,000
By Consignment A/c
(Expenses)10,000
By Consignment A/c
(Commission)28,800
By Balance c/d 4,81,200
7,20,000 7,20,000
Illustration 8:
Namdeo of Nagar co nsigned 250 Refrigerators at Rs.6,000
each to Vasant of Pune. He paid Rs.15,000 for carriage and
Rs.20,000 for insurance. Vasant took delivery of the refrigerators
and paid Rs.60,000 for octroi and other charges. The consignee
accepted a bill ofRs.2,00,000 drawn by consignor for four months.
The consignee sold 200 refrigerators at Rs.7,500 each. He
has paid Rs.18,000 for selling expenses and Rs.12,000 for other
expenses. The consignee is entitled to a commission at 10% on the
gross sales.munotes.in
61
Prepare consignment account in the book of consignor.
Solution:
In the books of Namdeo of Nagar
Dr. Consignment to Pune A/c. Cr.
Particulars Rs. Particulars Rs.
To Goods Sent on
Consignment A/c
(250 x 6,000)15,00,000 By Vasant’s A/c
(Sales
200 x 7,500)15,00,000
To Cash/Bank A/c. By Closing Stock 3,19,000
Carriage 15,000
Insurance 20,000 35,000
To Vasant’s A/c 60,000
(Octroi & other charges)
To Vasant’s A/c.
Selling Exps. 18,000
Other Exps. 10% 12,000
10% C ommission 1,50,000 1,80,000
To Profit on Consignment 44,000
transferred to P & L A/c.
18,19,000 18,19,000
Illustration 9:
Karanth sold goods on behalf of Vijay Sales on consignment
basis. On January 1, 20 17, he had with him a stock of Rs.20,000
on consignment.
Karanth had instruction to sell the goods at cost plus 25%
and was entitled to a commission of 4% on sales. In addition to 1%
del credere commission on total sales for guaranteeing collection of
all the sales proceeds.
During the year ended 31stDecember, 20 17, cash sales
were Rs.1,20,000, credit sales Rs.1,05,000 and Karanth’s
expenses relating to the consignment Rs.3,000 being salaries and
insurance. Bad debts were Rs.3,000 and goods sent on
consignment Rs.2,00,000.
From the a bove, prepare Consignment Account and
Consignee’s Account in the books of Vijay Sales and important
Ledger accounts in the books of Karnath.munotes.in
62
Solution:
Ledger of Vijay Sales
Dr. Consignment Account Cr.
Particulars Rs. Pariculars Rs.
To Stock on C onsignment
A/c b/d20,000 By Karanth A/c (cash
Sales)1,20,000
To Goods sent on
Consignment A/c2,00,000 By Karanth A/c
(Cr. sales)1,05,000
To Karanth A/c
(Expenses)3,000 By Stock on
consignment A/c40,000
To Karanth A/c (Comm.) 9,000
To Karanth A /c
(Del Cr. Comm.)2,250
To Profit & Loss A/c
(Profit)30,750
2,65,000 2,65,000
Dr. Karanth’s Account Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Cash Sales)1,20,000 By Consignment A/c
(Expenses)3,000
To Consignment A/c
(Cr.Sales)1,05,000 By Consignment A/c
(Comm.)9,000
By Consignment A/c
(Del Cr. Comm.)2,250
By Balance c/d 2,10,750
2,25,000 2,25,000
Dr. Goods sent on Consignment Account Cr.
Particulars Rs. Particulars Rs.
To Trading A/c
(transfer)2,00,000 By Consignment A/c 2,00,000
2,00,000 2,00,000munotes.in
63
Ledger of Karanth
Dr. Vijay Sales’s Account Cr.
Particulars Rs. Particulars Rs.
To Cash/Bank A/c
(Expenses)3,000 By Cash/Bank A/c
(Sales)1,20,000
To Commission A/c 9,000 1,05,000
To Del Credere
Commission A/c2,250By Consignment
Debtors A/c.
(Cr. Sales)
To Balance c/d 2,10,750
2,25,000 2,25,000
Dr. Consignment Debtors Account Cr.
Particulars Rs. Particulars Rs.
To Vijay Sales A/c 1,05,000 By Cash/Bank A/c
(collection)1,02,000
By Del Credere
Commission A/c3,000
1,05,000 1,05,000
Dr. Commission Account Cr.
Particulars Rs. Particulars Rs.
To Profit & Loss A/c (Bal. Tfd.) 9,000 By Vijay Sales’s A/c 9,000
9,000 9,000
Dr. Del Credere Commission Account Cr.
Partic ulars Rs. Particulars Rs.
To Consignment Debtors
A/c(Bad Debts)3,000 By Vijay Sales’s A/c 2,250
By Profit & Loss A/c
(Bal. Tfd.)750
3,000 3,000
Dr. Profit & Loss Account Cr.
Particulars Rs. Particulars Rs.
750 By Commission A/c 9,000 To Del Creder
Commission A/c
(Net tfd.)
To Profit c/d to Balance
Sheet8,250
9,000 9,000munotes.in
64
Working Note :
Closing Stock
Cost of Opening Stock 20,000
Cost of Goods Sent 2,00,000
--------------
Total Cost of Goods 2,20,000
Less : Cost of Goods Sold (2,25,000 x 80%) 1,80,000
--------------
Value of Closing Stock 40,000
Illustration 1 0:
Amiankusum of Calcutta consigned on 1 -1-2017goods at
invoice value of Rs.12,500 which was made up b y adding 25% on
cost, to Manasumukul of Arunachal. Amlankusum paid Rs.300 as
freight and Rs.200 as insurance on these goods.
On 30 -6-2017Amlankusum received a remittance of
Rs.7,000 with an Account Sales from Manasumukul showing that
he had –
(1)Sold 3/5 of goods for Rs.9,000.
(2)Paid Rs.150 as landing charges and Rs.250 as selling
expenses.
(3)Retained his commission of 10% on gross sales.
You are required to write up –
(a)The Consignment to Arunachal A/c, and
(b)Manasumukul’s Person al A/c
as they would appear in the books of Amlankusum for the period
ended 30 -06-2017which is the end of his accounting year.
Solution :
LEDGER OF AMLANKUSUM
Dr. Consignment Account Cr.
Particulars Rs. Particulars Rs.
To Goods Sent on
Consignment A/c12,500 By Manasmukul A/c
(Sales )9,000
To Cash/Bank A/c
(Amlankusum’s Expenses)500 By Stock on Consignment
A/c5,260
To Manasmukul A/c
(Expenses)400 By Goods sent on
Consignment A/c (Load)2,500
To Manasmukul A/c (Comm.) 900
[9,000 x 10%]
To Stock Reserve (Load) 1,000
To Profit & Loss A/c (Profit) 1,460
16,760 16,760munotes.in
65
Dr. Manasmukul’s Account Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Cash Sales)9,000 By Consignment A/c
(Expenses)400
By Consignment A/c
(Com m.)900
By Cash/Bank A/c
(Remittance)7,000
By Balance c/d 700
9,000 9,000
Dr. Goods Sent on Consignment Account Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c (Load) 2,500 By Consignment A/c 12,500
To Trading A/c (transf er) 10,000
12,500 12,500
Ledger of Manasmukul
Dr. Amlankusum’s Account Cr.
Particulars Rs. Particulars Rs.
To Cash/Bank A/c
(Expenses)400 By Cash/Bank A/c
(Sales)9,000
To Commission A/c 900
To Cash/Bank A/c
(Remittance)7,000
To Bal ance c/d 700
9,000 9,000
Working Notes :
1.Closing Stock
Value of Goods Sent 12,500
Amlankusum’s Expenses 500
Manasmukul’s Expenses (landing charges) 150
Total value 13,150
Illustration 1 1:
H. Ltd. forwarded on 1 -7-2017, 100 bicycles to Vasu of
Hyderabad to be sold on behalf of H Ltd. The cost of each bicycle
wasRs.150 but the Invoice price was Rs.200. H. Ltd. incurred
Rs.1,000 on freight and insurance. Vasu received the consignment
on14-7-2017andaccepted a three months draft drawn upon himmunotes.in
66
by H. Ltd. for Rs.10,000. Vasu paid Rs.400 as rent and Rs.250 as
insurance and by 31 -12-2017had disposed of 80 bicycles at
Rs.205 each. Vasu is entitled to a commission of 5 per cent on
sales including a del credere commission of 1%. Vasu sold 20
bicycles on credit and was not able to recover sales proceeds of 5
bicycles because of insolvency of the debtor.
Prepare Ledger Accounts to record the above transactions in
the books of H. Ltd. and Vasu.
Solution :
LEDGER OF H LTD.
Dr. Consignment Account Cr.
Particulars Rs. Particulars Rs.
To Goods sent on
Consignment A/c20,000 By Vasu A/c (Cash Sales) 12,300
To Cash/Bank A/c 1,000 By Vasu A/c (Cr. sales) 4,100
(H. Ltd.’ s Expenses) By S tock on Consignment
A/c4,200
To Vasu A/c (Expenses) 650 5,000
To Vasu A/c (Comm.) 656By Goods sent on
Consignment A/c
(Load)
[4% x (12,300 + 4,100)]
To Vasu A/c (Del Cr.
Comm.)164
[1% x (12,300 + 4,100)]
To Stock Reserve (Load) 1,000
To Profit & Loss A/c (Profit) 2,130
25,600 25,600
Dr. Vasu’s Account Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c
(Cash Sales)12,300 By Bills Receivable
A/c (Advance)10,000
To Consignment A/c
(Cr. Sales)4,100 By Consignment A/c
(Expenses)650
By Consignment A/c
(Comm.)656
By Consignment A/c
(Del Cr. Comm.)164
By Balance c/d 4,930
16,400 16,400munotes.in
67
Dr. Goods sent on Consignment Account Cr.
Particulars Rs. Particulars Rs.
To Consignment A/c (Load) 5,000 By Consignme nt A/c 20,000
To Trading A/c (transfer) 15,000
20,000 20,000
LEDGER OF VASU
Dr. H Ltd.’s Account Cr.
Particulars Rs. Particulars Rs.
To Bills Payable A/c
(Advance)10,000 By Cash/Bank A/c
(Sales)12,300
To Cash/Bank A/c
(Expenses)650 By Consignment
Debtors A/c4,100
To Commission A/c 656 (Cr. Sales)
To Del Creder
Commission A/c164
To Balance c/d 4,930
16,400 16,400
Dr. Consignment Debtors Account Cr.
Particulars Rs. Particulars Rs.
To H Ltd.’s A/c 4,100 Ny Cash/Bank A/c (collection) 3,075
By Del Credere Commission
A/c1,025
4,100 4,100
Dr. Commission Account Cr.
Particulars Rs. Particulars Rs.
To Profit & Loss A/c
(Bal. Tfd.)656 By H Ltd.’s A/c 656
656 656
Dr. Del Credere Commi ssion Account Cr.
Particulars Rs. Particulars Rs.
To Consignment Debtors A/c 1,025 By H Ltd.’s A/c 164
(Bad Debts) By Profit & Loss A/c
(bal. Tfd.)861
1,025 1,025munotes.in
68
Dr. Profit & Loss Account Cr.
Particulars Rs. Particulars Rs.
To Del Creder Commission
A/c861 By Commission A/c 656
(Net tfd.) By Loss c/d to Balance Sheet 205
861 861
Working Notes :
1.Closing Stock
Value of Goods Sent (Quantity x Rato) 20,000
H Ltd.’s Expenses 1.000
Vasu’s Direct/Non -recurring Expenses Nil
----------
Total Value 21,000
Closing Stock Value 21,000 * 20 /100 4,200
4.2EXERCISES
1.On 1stJune, 20 13; Bendre of Bombay consigned 100 cases
costing Rs.700 each to Shirole of Solapur. Bendre paid Rs.500 for
carriage. Shirole paid Rs.100 for Octroi and Rs.350 for carriage
and other expenses. Shirole sent Rs.4,000 as an advance against
the consignment. Shirole sold 90 cases for Rs.72,000 .Shirole is
entitle dto a Commission of 5% on total sales.
Pass journal entries in the books of both the parties.
[Ans. Profit Rs.4,545]
2.Ajay of Delhi sent on consignment goods to Banita of Baroda
100 sewing machines on consignment costing Rs.200 each. The
consignor paid Rs.1,000 by way of freight and insurance. Benita
spent Rs.500 by way of godown rent and other expeses. At the end
of the year ,10 machines remaining unsold with Banita. The
consignee sold sewing machines @ Rs.250 per machine. Banita
remitted the sale proceeds after deducting expenses and her
commi ssion which was 5% of the goods sold.
Prepare Consignment Account and Consignee’s Account in the
books of the consignor.
[Ans. Profit on Consignment Rs. 1,975
Value of Unsold stock Rs. 2,100
Amount remitted by Consignee Rs.20,875]
3.M/s Raman & Co. consig ned to Arora of Akola 500 radio sets
costing Rs.450 each. They paid freig htRs.2,500 ,insurance Rs.500
and sundry expenses Rs.3,000. Arora took delivery of the goods by
paying clearing charges Rs.700 and carri ageRs.500. M/s. Raman
& Co. drew three months bill for Rs.1,00,000 which wasdiscountedmunotes.in
69
at 5% p.a. Arora sold 300 sets at Rs.600 each and the balance at
Rs.550 each. Arora is entitled to commission of 5% on sale
proceeds. Arora remitted the balance due by a bank draft.
Show Consignment Account and Arora’s Account in the books
of M/s Raman & Company.
(Ans. Profit Rs. 46,000; Commission Rs. 14,500: Balance received
from Arora Rs.1,74,300. )
4.M/s Ram eshOil Mills, Mumbai, consigned 4,000 litres of Cas tor
oil (in 10 litre tins) to Ch atterjiof Kolkatta on 1stApril, 20 17. The
cost of oil was Rs.20 per litre. The consignors paid Rs.10,000 as
freight and insurance. During transit ,5 tins were totally destroyed for
which the Insurance Company paid directly to the consignor
Rs.900 in full settlement of the claim.
Chatterji took delivery of the consignment on 10thApril 20 17
and accepted bill drawn on him by Ramesh Oil Mills f orRs.20,000
for 3 months. On June 30, 20 17, Chatterji reported tha t 3,500 litres
were sold at Rs.30 per litre. The expenses were as following:
Particulars Rs.
Godown Rent 400
Advertisement 2,000
Salaries to Salesmen 4,000
Chatterji charged a normal commission of 3% and del credere
commission of 3%. He sold the rem aining stock of oil forRs.19,000
to X and C, who were declared bankrupt after two months and only
50 paise per rupee where realised from them.
Prepare the following accounts in the books of consignor,
assuming that the consignee paid the amount due by bank draft:
1)Consignment Account.
2)Consigneer’s Account.
3)Goods Sent on Consignment Account.
(Ans. Profit Rs. 21,285; Final Remittance Rs. 1,24,000; Abnormal Loss
Rs.1,125)
5.M & Co of Nagpur sent 100 sewing machines on co nsignment to
Nandini of Nasik, spent Rs.250 on packing. The cost of each
machine was Rs.112 but it was now invoiced at 25% above cost.
One case containing 5 machines was lost in transit. Nandini
paidRs.475 as freight on the remaining machines. He had to spend
Rs.95 as cartage and octroi duty and Rs.190 as godown rent and
Rs.50 as other expenses. He sold 75 machines @ Rs.190. He
found 10 machines defective and therefore returned them to
Nagpur at cost, Nandini is entitled to a commission of 5% onmunotes.in
70
invoice price and 20% of any excess price realised on the invoice
price and 1% del credere commission. Nandini could not realise
sale proceeds of 5 machines.
Prepare Consignment Account, Consignee’s Account,
Consignment Stock Account and Consignment Stock Reser ve
Account in the books of M & Co.
[Ans. Profit on consignment Rs.3,470. Loss Rs.572.50. Stock Account Rs.
1,485 Commission Rs.1417.50]
munotes.in
71
Unit-5
BRANCH ACCOUNTS I
Unit Structure :
5.0 Objectives
5.1 Introduction
5.2 Types of Branches
5.3 Debtors System
5.4 Stock and Debtors System
5.5 Exercises
5.0OBJECTIVES
After studying the unit the students will be able to:
Explain the types of Bran ches.
Understand the methods of accounting of Branch
transactions
Journalise the transactions related to Branch Account.
5.1INTRODUCTION
A large business enterprise may have one main office and
one or more small offices maintained mainly for the purpos e of
increasing sales. Such small outlet is called as a branch. The main
office is called as Head Office.
Branch is an additional place of business opened mainly for
the convenience of customers.
The basic purpose of maintaining branch account sis to
evalu ate the performance of the branch and ascertain profit made
by the branch.
5.2TYPES OF BRANCHES
A)Dependent Branch
B)Independent Branchmunotes.in
72
A)Dependent Branch: Head office sends goods to the branch,
either at cost or at a price higher than thecost, called as inv oice
price. The branch sells the goods on cash or credit basis and
remits all the cash received to the head office. The branch
expenses are paid by the branch itself or by the head office
depending upon the policy of the enterprise. This branch
depends upo n the head office for the purpose of maintaining
accounts. The branch does not maintain complete set of double
entry books of accounts. The branch maintains only necessary
records on memorandum basis and sends periodic reports to
the head office. It is the head office that does all the accounting
work.
B)Independent Branch: Thisbranch ,as the name suggests ,
does not depend upon head office. It does all the accounting
work by itself. It maintains complete set of double entry books of
accounts. At the end o f the year ,a trial balance is extracted
from the ledger. This trial balance is then sent to the head office
for finalization.
In case of Dependent Branch es,Head Office can maintain
accounts of the branch by adopting any one of the following two
methods :
1.Debtors System
2.Stock and Debtors System
5.3DEBTORS SYSTEM
In this type of system ,the head office opens one account in
its Ledger for every branch. The type of this account i spersonal
account.
The rule applicable is
“ Debit the Receiver and Credit t he Giver”
All transactions between branch and head office are
recorded in this account. All the transactions between branch and
third party are not recor ded by the head office. Here ,the branch is
treated as a debtor and hence ,only transactions between b ranch
and head office are recorded. Since actual owner of the branch is
head office itself, assets and liabilities of the branch are assets and
liabilities of head office, these are also recorded through branch
account.munotes.in
73
Sometimes goods are sent to t he branch at a price higher
than the cost price. This price is called as Invoice Price. The profit
element added to the cost price is called as Loading. Branch
Manager is expected to sell th egoods at this price. In such case ,
we have to find out the loadi ngon all the transactions of goods
between branch and head office.
Chart showing calculation of loading:
% on Cost % on Sales
100% on cost (1/1 of Cost) 50% on sales (1/2on sales)
50 % on c ost (1/2 of cost) 331/3rdon sales (1/3on sales)
331/3rdon cost (1/3 of cost) 25% on sales (1/4 on sales)
25% on cost (1/4 of Cost) 20% on sales (1/5on sales)
20% on cost (1/5 of Cost) 16 2/3% on sales (1/6on sales)
PROFORMA JOURNAL ENTRIES
Sr.
No.Particu lars Dr.
Rs.Cr.
Rs.
1 Branch Assets at the beginning
Branch A/c Dr.
To Opening Stock A/c xx
To Furniture A/c xx
To Debtors A/c xx
To Cash A/c xx
To Prepaid Ex penses A/c xx
2 Branch liabilities at the beginning
Branch Creditors A/c Dr. xx
Loading on opening stock A/c Dr. xx
Outstanding Expenses A/c Dr. xx
To Branch A/c xx
3 Goods sent to br anch
Branch A/c Dr. xx
To Goods Sent to Branch xx
4 Loading on above .
Goods Sent to Branch A/c Dr xx
To Branch A/c xxmunotes.in
74
5 Goods Returned by Branch
Goods Sent to Branch A/c Dr. xx
To Branch A/c xx
6 Loading on above
Branch A/c Dr. xx
To Goods Sent to Branch A/c xx
7 Expenses of branc h paid by head office
Branch A/c Dr. xx
To Cash A/c xx
8 Cash sent to branch for expenses
Branch A/c Dr. xx
To Cash A/c xx
9 Cash remitted by bran ch to head office
Cash A/c Dr. xx
To Branch A/c xx
10 Branch Assets at the end of the year
Closing Stock A/c Dr. xx
Furniture A/ c Dr. xx
Debtors A/c Dr. xx
Cash A/c Dr. xx
Prepaid Expenses A/c Dr. xx
To Branch A/c xx
11 Branch liabilities at the end of the year xx
Branch A/c Dr.
To Branch Creditors A/c xx
To Loading on Closing Stock A/c xx
To Outstanding Expenses A/c xx
12 Net Profit made by the Branch
Branch A/c Dr. xx
To Profit & Loss A/c xx
13 Net Loss made by the Branch
Profit & Los s A/c Dr. xx
To B ranch A/c xxmunotes.in
75
PROFORMA OF BRANCH A/C
Particulars Dr.
Rs.Particulars Cr.
Rs.
To Balance B/d
Opening Stock xx
Opening Cash xx
Opening Debtors xx
Opening Furniture xx
Opening Prepaid Exp
xx xxBy Balance B/d
Opening Stock Reserve
xx
Opening Creditors
xx
Opening O/S Expe nses
xx Xx
To Goods Sent to Branch
A/c
(sent by HO to Branch )XxBy Goods Sent to Branch
A/c
(Loading on goods sent
to branch )Xx
To Goods Sent to Branch
A/c
(loading on goods returned
by branch )XxBy Goods Sent to Branch
A/c
(goods returned by
branch )xx
To Cash A/c
-branch expenses paid by
HO xx
-Cash remitted to branch for
expenses xx XxBy Cash A/c
-cash remitted by branch
to head office xx
-cash sales xx
-*cash from debtors xx Xx
To Balance B/d
Closing Stock Reserve xx
Closing Creditors xx
Closing O/S Expenses xx
xxTo Balance B/d
Closing Stock xx
Closing Cash xx
Closing Debtors xx
Closing Furniture xx
Closing Prepaid Exp xx
Xx
xxx xxx
Following transactions between branch and third part y are not
recorded in the above Branch A/c
1.Cash Sales made by branch
2.Credit Sales made by branch
3.Credit Sales returns at the branch
4.Discount allowed to branch debtors
5.Cash collected from debtors
6.Bad debts at branch
7.Expenses paid by branch out of cash colle ctedmunotes.in
76
*If any one of these three figures is not given then Prepare Branch
Debtors A/c as follows
Proforma of Branch Debtors A/c
Particulars Rs. Particulars Rs.
To Balance b/d Xx By Bad Debts Xx
To Credit Sales Xx By Branch cash Xx
By Discount allowed Xx
By Credit Sales returns Xx
By Balance c/d Xx
Xx Xx
If branch manager is allowed to make expenses out of cash
collected and remits the balance cash to Head Office, then prepare
Branch Cash A/c as follows :-
Proforma of Branch Cash A/c
Particula rs Rs. Particulars Rs.
To balance B/d Xx By Branch Expenses
To Cash Sales Xx Rent Xx
To Branch Debtors Xx Salaries Xx
Insurance Xx
Sundry expenses Xx
By Cash remitted to head
officeXx
ByBalance C/d Xx
Xx Xx
5.4STOCK AND DEBTORS SYSTEM
Under this system ,head office maintains following accounts for
each branch :
1.Branch Stock Account :Type of this account isReal Account.
This account is always maintained at invoice price. This account
gives us stock at branch at any given time at invoice price .
Normally balancing figure in this account is closing stock. If
closing stock and all other relevant figures are already given
then this account should balance by itself. If it does not balancemunotes.in
77
then balancing figure indi cates either shortage of stock or
surplus of stock. If debit side is heavy (i.e. Dr. balance) then it is
surplus of stock and if credit side is heavy (i.e. Cr. balance) then
it is shortage of stock. If the Dr. balance is more then it is
regarded as excess Gross Profit
2.Goods Sent to Branch Account :Type of this account is Real
account. Transactions of goods between Branch and Head
Office are recorded through account. This account gives us cost
of goods sent to the branch. Atthe end of the year ,this accoun t
shows credit balance and it is transferred to Trading A/c.
3.Branch Stock Adjustment Account :Type of this account is
Nominal account. Entries regarding loading are passed through
this account. This account gives us gross profit made by the
Branch at any given time. The gross profit as shown by this
account is transferred to Branch Profit and Loss Account.
4.Branch Profit and Loss Account :Type of this account is
Nominal Account. All the losses and expenses pertaining to the
Branc h are debited to this account and all the profits pertaining
to the branch are credited to this account .This account gives us
Net Profit or Net Loss made by the branch.
5.Branch Debtors Account: Type of this account is Personal
Account. Entries regarding Branch Debtors are recorded
through this Account .
6.Branch Cash Account : Type of this account is Real Account.
Transactions pertaining to branch cash are recorded through
this account. This account gives us cash position at
the br anch at any given time.
7.Branch Expenses Account :All the expenses of the Branch
are debited to this account. At the end of the year ,balance in
this account is transferred to Branch Profit and Loss account.
If the branch expenses are directly debit ed to Branch Profit
andLoss Account ,then this account is not opened at all.munotes.in
78
PROFORMA JOURNAL ENTRIES
Sr.
No.Particulars Dr.
Rs.Cr.
Rs.
1 Branch Assets at the beginning
Branch stock(at invoice price)
Branch Cas h
Branch Debtors
Taken as opening Dr. balances in the
respective accounts
2 Branch liabilities at the beginning
Branch Creditors A/c
Taken as opening cr. balance in the
Branch Creditors Account
Loading on Opening Stock A/c
Taken as opening cr. balance in the
Branch Stock Adjustment Account
3 Goods sent to branch
At Invoice Price
a. Branch Stock A/c Dr. xx
To Goods Sent to Branch A/c xx
b. Loading on above
Goods Sent to Branch A/c Dr. xx
To Branch Stock Adjustment A/c xxmunotes.in
79
4 Goods Returned by Branch
a. At Invoice Price
Goods Sent to Branch A/c Dr. xx
To Branch Stock A/c xx
b. Loading on above
Branch Stock Adjustment A/c Dr. xx
To Goods Sent to Branch A/c xx
5. Cash sales at Branch
Branch Cash A/c Dr. Xx
To Branch Stock A/c Xx
6. Cash Sales Returns
Branch Stock A/c Dr. Xx
To Branch Cash A/c Xx
7. Credit Sales at Branch
Branch Debtors A/c Dr. Xx
To Branch Stock A/c Xx
8. Credit Sales Returns
Branch Stock A/c Dr. Xx
To Branch Debtors A/c Xx
9. Cash collected from Branch Debtors
Branch Cash A/c Dr. Xx
To Branch Debtors A/c Xx
10. Bad debts at Branch
Bran ch Profit And Loss A/c Dr. Xx
To Branch Debtors A/c Xxmunotes.in
80
11. Discount allowed to Branch Debtors
Branch Profit And Loss A/c Dr. Xx
To Branch Debtors A/c Xx
12. Cash sent to Branch
Branch Cash A/c Dr. xx
To Cash A/c Xx
13. Cash remitted by Branch to Head Office
Cash A/c Dr. xx
To Branch Cash A/c Xx
14. Expenses incurred at branch
Branch Expenses A/c Dr. Xx
To Branch Cash A/c Xx
15 Expenses of Branch paid by Head Office
Branch Expenses A/c Dr. Xx
To Cash A/c Xx
16. Surplus of Stock at branch
Branch Stock A/c (at invoice price) Dr. Xx
To Branch Stock Adjustment A/c
(loading)Xx
To Branch Profit and Loss A/c
(cost Price)Xx
17. Shortage of Stock at branch
Branch Stock Adjustment A/c Dr.
(loading)Xx
Branch Profit and Loss A/c Dr.
(cost Price)Xx
To Branch Stock A/c (at invoice price) Xx
18. Closing of Goods Sent To Branch A/c
Goods Sent To Branch A/c Dr. Xx
To Trading A/c Xxmunotes.in
81
19. Closing of Branch Expenses
Branch Profi t And Loss A/c Dr. Xx
To Branch Expenses A/c Xx
20. Transfer of Gross Profit
Branch Stock Adjustment A/c Dr. Xx
To Branch Profit And Loss A/c Xx
21. Closing of Branch Profit and Loss A/c
a. If it shows Credit Balance i.e. Profit
Branch Profit&Loss A/c Dr. xx
To Profit & Loss A/c Xx
b. If it shows Debit Balance i.e. Loss
Profit & Loss A/c A/c Dr. xx
To Branch Profit & Loss A/c Xx
22 Branch Assets at the end of the year
Closing Stock (at Invoice Price)
Debtors
Cash
--Shown as debit balance sin respective
Accounts
23. Branch liabilities at the end of the year
Branch Creditors
Loading on Closing stock
--Shown as credit balances in respective
Accountsmunotes.in
82
PROFORMA OF VARIOUS A CCOUNTS
Branch Stock A/c(At Invoice Price)
Particul ars Rs. Particulars Rs.
To Balance b/d
(Opening Stock)Xx By Branch Debtors A/c
(Credit Sales )Xx
To Goods Sent to Branch A/c Xx By Branch Cash A/c
(Cash Sales )Xx
To Branch Debtors A/c
(Sales Returns)By Goods Sent to Branch A/c
(Goods Retur ned)Xx
To Branch Cash A/c
(Sales Returns)By Shortage Xx
To Surplus Xx By Balance c/d (Closing Stock) Xx
Xx Xx
Goods Sent to Branch A/c
Particulars Rs. Particulars Rs.
To Branch Stock Adjustment
A/c(loading on goods sent)Xx By Branch Stock A/c
(Invoice Price )Xx
To Branch Stock A/c
(Goods Returned by branch )Xx ByBranch Stock Adjustment A/c
(Loading on goods returned )Xx
To Trading A/c Xx Xx
Xx Xx
Branch Stock Adjustment A/c (Loading Element )
Particulars Rs. Particulars Rs.
To Goods Sent to Branch A/c
(Loading on goods returned)Xx By Balance B/d
(Loading on opening Stock)Xx
To Shortage ( Loading) Xx By Goods Sent to Branch A/c
(Loading on goods sent)Xx
ToBranch Profit&Loss A/c
(Transfer of gross profit)Xx By S urplus (Loading ) Xx
To Balance B/d
(Loading on closing stock )Xx
Xx Xxmunotes.in
83
Branch Profit and Loss A/c
Particulars Rs. Particulars Rs.
To Branch Expenses Xx By Branch Stock Adjustment
(Gross Profit )Xx
To Branch Debtors (Bad
Debts)Xx
To Branch Debtors (Discount ) Xx By Net Profit Transferred to
general P& L A/cXx
To Depreciation on Branch
AssetsXx
To Net Profit Transferred to
general P& L A/cXx
Xx Xx
Branch Debtors A/c
Particulars Rs.Particulars Rs.
To Balance b/d Xx ByBranch P & L A/c
(Baddebts)Xx
ToBranch Stock A/c
(Credit sales )Xx By Branch cash Xx
ByBranch P & L A/c (Discount
allowed )Xx
ByBranch Stock A/c
(Credit sales returns )Xx
By Balance c/d Xx
Xx Xxmunotes.in
84
Branch Cash A/c
Particular s Rs. Particulars Rs.
ToBalance B/d Xx By Branch Expenses A/c
ToBranch Stock A/c
(Cash sales )Xx Rent Xx
To Branch Debtors Xx Salaries Xx
To Cash A/c
(from head office for
expenses)Insurance Xx
Sundry expenses Xx
By Bra nch Cash A/c
(Cash Sales returns )
By Branch Debtors A/c
(Credit Sales returns)
By Cash remitted to head
office A/cXx
ByBalance C/d Xx
Xx
Xx Xx
Sometimes all the cash collected by the branch is remitted to head
office and e xpenses of Branch are paid out of petty cash maintained
at branch.
Branch Petty Cash A/c
Particulars Rs. Particulars Rs.
To balance B/d Xx By Branch Expenses A/c
To Cash A/c
(from head office for
expenses)Rent Xx
Salaries Xx
Insurance Xx
Sundry expenses Xx
By Balance C/d Xx
Xx Xxmunotes.in
85
Sometimes goods are sent to branch at cost price then
Branch Stock A/c is maintained at cost price and Branch Stock
Adjustment Account is not at all required.
5.5EXERCISE
1.Explain the types of branches.
2.Elaborate the accounting procedure under the Debtors Method.
3.Which accounts are opened under the Stock and Debtors
Account System ?
4.Objective type questions:
State whether the following statements are True or False.
1.Under Debtors System, bad d ebts and discount allowed are
shown in the Branch Account.
2.Under Debtors System, Debtors at close are shown on the Debit
Side of the Branch Account after adjusting for bad debts ,
discount allowed etc.
3.Under Debtors System, Depreciation is not shown in the Branch
Account.
4.Reserve for Bad Debts and Reserve for Discount on Debtors
will be recorded separately in the Branch account under the
Debtors System.
5.Actual petty expenses incurred by the Branch Account under
the Debtors system will not be recorded in the Branch Account.
6.Sales Returns will not appear directly in the Branch Account
under the Debtors System.
7.Branch Account under Debtors System is a Real Account.
8.Under Debtors System ,Branch Account is debited with losses
like bad debts, discounts allowed and depreciation.
9.When the Branch Manager is allowed petty cash on Imprest
System, the amount remitted by Head Office to reimburse the
actual expenses will be debited to the Branch Account.
10.Branch Account is a nominal account in nature and is prepared
in the Branch Books.
(Answers: False –1, 2, 4, 7, 8, 10 True –3, 5, 6, 9)munotes.in
86
Indicate the correct answers:
1.Under Debtors System, the Debtors at close are shown
(i) On the credit side of the Head Office Account
(ii) On the debit side of the Branc hAccount
(iii) On the credit side of the Branch Account after adjusting for
bad debts, discount allowed etc.
(iv) Are not shown in the Branch account
2.Under Debtors System ,treatment of Reserve for Bad debts is
(i) Shown it on the credit side o f Branch a/c
(ii) It is not shown in Branch a/c
(iii) It is deducted from the Branch Debtors and the good
Branch debtors are shown in the Branch account
(iv) It is shown on the debit side of the general Profit and Loss
account
3.The treatmen t of petty expenses made by the Debtors System
is as follows
(i)It is not recorded in the Branch account
(ii)It is shown on the debit side of the Branch account
(iii)It is shown on the general Profit and Loss account of Head
Office
(iv)Only the closing balance of Petty Cash
(Opening balance plus amoun t reduced from Head Office less
petty expenses) will appear in the credit side of the Branch
account
4.Under Debtors System, the Branch Account is
(i)Real Account
(ii)Nominal Account
(iii)Personal Account
(iv)None of the above
5.Stock Reserve in relation on opening Stock appears (under the
Debtors System)
(i)On the debit side of the Branch Account
(ii)On the credit side of the Branch Account
(iii)On the Credit si de of Head Office Account
(iv)None of the above
6.Stock reserve in relation to closing stock appears (under the
Debtors System)
(i)On the debit side of the Branch Account
(ii)On the credit side of the Branch Account
(iii)On the debit side of Head Office Account
(iv)None of the abovemunotes.in
87
7.The cash and credit sales of the branch are Rs.5,000 and
Rs.15,000 respectively. The amount collected from debtors is
Rs.10,000. The amount to be credited to Branch Account under
the Debtors Syst em will be
(i) Rs.20,000 (ii) Rs.15,000
(iii) Rs.10,000 (iv) Rs.25,000
8.The opening balance of Petty Cash at the Branch is Rs.2,000,
Amount received from the Head Office for Petty Expenses is
Rs.10,000, the closing balance of Petty Cash is Rs. 3,000; Which of
the following is the right answer under the Debtors System?
(i)Rs.9,000 on the Debit side of the Branch Account as Petty
Expenses .
(ii)Rs.3,000 on the Credit side of the Branch Account as Pett y
Cash .
(iii)Rs.7,000 on the Credit side of the Branch Account as Petty
Cash Expenses.
(iv)None of the above.
(Answers :1-(iii); 2-(iii); 3-(iv); 4-(ii); 5-(ii); 6-(i);7-(ii); 8-(ii))
Fill in the Blanks:
1.The system of operati ng at several places through one’s own
establishments is called .
2.The main establishment located at the main place of activity
is called the and the subsidiary establishment
located at various places are called .
3.Branches may be divided into 3
categories, branches, branches
and foreign branches.
4.Goods supplied to Dependent Branches by the Head Office
may be either at or at price.
5.The One Account System or Debtors System is generally
adopted when the branch is fairly in size.
6.Branch Account is a in nature and is prepared
in the Head Office Books.
7.Under Debtors System, bad debts and discounts allowed
are in the Branch Account.
8.Under the Debtors System ,the debtors (at close) are shown
on the of the Branch Account after adjusting bad
debts, discount allowed etc.munotes.in
88
9.Under Debtors System ,fixed asse ts is shown on the credit
side only after the amount of depreciation, if
any.
10.Under the Debtors System, the Head Office will record all
the transactions relating to the branch in the Branch Account
through and relationship between the
Branch and the Head Office.
11.Under the Debtors System, the Reserve for Doubtful Debts
/Reserve for Discount on Debtors, should be from
closing Debtors and only the good closing Debtors will be
recorde d in the Branch Account.
12.Actual petty expenses incurred by the branch
will in the Branch Account under the Debtors
System.
(Answers: 1-Branch Organization; 2-Head Office, Branches;
3-Dependent, Independent ;4-Cost, Invoice; 5-Small;
6-Nominal Account; 7-not taken /shown; 8-Credit side;
9-deducting; 10-Debtors, Creditors; 11-deducted; 12-not be
recorded)
munotes.in
89
Unit-6
BRANCH ILLUSTRATIONS
Unit Structure :
6.0 Objectives
6.1 Solved Problems
6.2 Exercises
6.0OBJECTIVES
After studying the unit the students will be able to solve the
practical problems on Branch Accounting .
6.1SOLVED PROBLEMS
Illustration No. 1:
Moonlight Lt d. has a head office at Chandrapur and branch
at Poona Branch isare supplied goods from the head office at 20%
profit on sales price. Accounts are kept at head office from where
all expenses (except petty expenses) are paid .Such pett y
expenses are paid by the branches which are allowed to maintain
petty cash balance of Rs.4,600 on imprest system
Particulars Rs.
Balance on 1 -4-2017
Petty Cash at Branch 4,600
Stock at Branch at Sales Price 1,00,000
Sundry Debtors at Branch 48,00 0
Sundry Creditors at Branch 22,400
Furniture at Branch 56,000
Rent Prepaid (upto 30 -06-2018) 2,600
Transactions during the year ended 31 -03-2018
Goods sent to Branch less Returns 8,08,000
Cash Sales at Branch 11,60,000
Credit Sales at Branch 1.90.000
Allowances to Debtors 3,000
Cash from Debtors 1,60,000munotes.in
90
Bad Debts written off 2,400
Cash Purchases by the Branch 81,000
Credit Purcahses 1,99,600
Creditors at the end 46,000
Payments made by the Head Office:
Rent for one year (paid on 01 -07-2017) 5,600
Salaries 24,000
Insurance paid for the year ending 30 -06-2018 1,920
Payments made by the Branch :
Petty Expenses 960
Balance on 31 -03-2018:
Stock at Sales Price 75,000
Write off 10% depreciation on furniture.
Solution
In the Books o f Moonlight Ltd.
Dr. Branch A/c Cr.
Particulars Rs. Rs. Particulars Rs.
To Balance b/d By Balance b/d
Petty Cash 4,600 Creditors 22,400
Stock 1,00,000 By Cash (Remittance) 10,63,000
Debtors 48,000 By Goods sent to
Branch1,61,600
Furnitur e 56,000 By Balance c/d:
Prepaid Rent 2,600 Branch Stock 75,000
To Goods sent to Branch Debtors 72,600
Branch A/c 8,08,000 Branch Petty Cash 4,600
To Bank A/c: Branch Furniture 50,400
Rent 5,600 Rent Prepaid 1,400
Salaries 24,000 Insuranc e Prepaid 480
Insurance 1,920 31,520 Stock Reserve 20,000
By Bank A/c
(Petty Expenses) 960
By Balance c/d:
Creditors 46,000
Stock Reserve 15,000
Profit & Loss A/c 3,58,800
14,71,480 14,71,480munotes.in
91
Working Notes : `
Dr. 1. Cash A/c Cr.
Particulars Rs. Particulars Rs.
To Cash Sales. 11,60,000 By Purchases 81,000
To Debtors 1,60,000 By Creditors 1,76,000
By Cash remitted
(Balancing Figure) 10,63,000
13,20,000 13,20,000
Dr. 2. Petty Cash A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 4,600 By Petty Expenses 960
To Reimbursement
of Expenses960 By Balance c/d 4,600
5,560 5,560
Dr. 3. Debtors A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 48,000 By Allowances 3,000
To Sales 1,90,000 ByBad Debts 2,400
By Cash 1,60,000
By balance c/d 72,600
2,38,000 2,38,000
Dr. 4. Creditors A/c Cr.
Particulars Rs. Particulars Rs.
To Cash (Balancing
Figure)1,76,000 By Balance b/d 22,400
To Balance c/d 46,000 By Purchases 1,99,600
2,22,000 2,22,000
Illustration No. 2 :
Amit Traders of Pune have their branch at Mumbai. Prepare
the Branch A/c in the books of the H.O from the following
transactions with the branch for the year.munotes.in
92
Particulars Rs.
Opening Balance :
Petty cash at Ban k 1,250
Stock at Branch 77,000
Debtors at Branch 41,250
Goods supplied to Branch during the year 3,78,000
Amount Remitted to the Branch :
For Petty cash expenses 7,500
For Salary 18,500
For Rent & Taxes 6,000
Closing Balance :
Petty cash at Bank 1,880
Stock at Branch 57,880
Debtors at Branch 1,26,150
Discount allowed to customers 1,060
Amount Remitted by the Branch:
Cash Sales 26,250
Realisation from debtors 4,10,350
Mr. Shah to whom goods were sold by the Branch
directly remitted the Amt . to the H.O. 9,000
Solution:
(In the Books of Head Office at Pune)
Dr. Mumbai Branch A/c Cr.
Date Particulars Rs. Date Particulars Rs.
To Balance
b/dBy Bank A/c
Petty cash 1,250 Cash Sales 26,250
Stock 77,000 Realisation
from
Debtors 41,250 1,19, 500 Debtors 4,10,350
To Goods
Sent to Branch3,78,000 Remitted to
H.O.9,000 4,45,600
To Bank A/c
Petty cash
expenses7,500 By Balance
c/d
Salary 18,500 Petty cash 1,880
Rent & Taxes 6,000 32,000 Stock 57,880
To General P
& L A/c1,02,010 Debtors 1,26,150 1,85, 910
6,31,510 6,31,510munotes.in
93
Note:
Discount Allowed to Customers Rs.1,060 is already reduced
from closing Debtors and hence, separate Entry is not passed.
Illustration No. 3:
Hari is having his Head Office at Mumbai and Branch Office
at Nasik. Prepare the Branch Account in the books of the Head
Office from the following transactions with the branch:
Particulars Rs. Particulars Rs.
Opening Balance at
branch :Amounts remitted to
the branch for :
-Petty Cash 1,000 -Petty Cash
Expenses4,000
-Stock 39,500-Salary 12,000
-Debtors 21,000 -Rent and Taxes 3,500
Goods Supplied to
branch during the year3,10,000 Closing balances at
Branch :
Amounts remitted by
the branch :-Petty Cas h 950
-Cash Sales 1,13,200 -Debtors 53,000
-Realisation from
debtors2,30,300 -Stock 26,500
Solution:
In the books of H. O.
Dr. Nasik Branch Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d: By Bank (Remittances) :
Branch Petty C ash 1,000 Cash Sales 1,13,200
Branch Stock 39,500 Realisation from Debtors 2,30,300
Branch Debtors 21,000 By Balance c/d:
To Goods sent to
Branch3,10,000 Branch Petty Cash 950
To Cash remitted for: Branch Debtors 53,000
Petty Cash Expenses 4,000 Branch Stock 26,500
Salary 12,000
Rent 3,500
To General P & L A/c
(Bal. Fig.)32,950
4,23,950 4,23,950munotes.in
94
Illustration No. 4:
Following information is given to you from the books of
Shivam Law Agency for its branch at Virar for the financial year
2017-18.Prepare Virar Branch A/c in the books of Shivam Law
Agency.
Particulars Rs. Particulars Rs.
Balance as on 1 -4-2017 Transactions during 20 17-2018
-Branch Debtors 1,200 -Goods sent H.O. 7,800
-Stock 600 -Cash sent by H.O. for petty
cash2,000
-Cash 100 -Goods lost at branch 750
Balance as on 31 -3-2012 -Credit Sales 3,600
-Branch Debtors ?-Insurance claim received by
branch600
-Cash 600 -Cash received from debtors. 2,400
-Stock 1,000 -Discount allowed 480
-Bad debts 520
-Goods returned by debtors 100
-Branch Exp. paid by H. O.
Salary320
-Advt. 780
-Amount remitted by branch to
H.O.8,460
(Nov. 1997, adapted)
Solution :
In the books of H.O.
Dr. Virar Branch Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d: By Bank 8,460
Debtors 1,200 By Balance c/d:
Stock 600 Closing stock 1,000
Cash 100 Cash 600
To Goods sent to Branch 7,800 Debtors (WN 1) 1,300
To Cash (Petty Cash) 2,000 By General P & L A/c 1,440
To Cash : (Bal. Fig. : Loss)
Salary 320
Advertisement 780 1,100
12,800 12,800munotes.in
95
Working Notes:
1)In Memorandum Books of Branch
Dr. Debtors Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 1,200 By Sales Returns 100
To Sales 3,600By Cash 2,400
By Bad Debts 520
By Discount 480
By Balance c/d (bal.
fig.)1,300
4,800 4,800
2)It is assum ed that remittance to H. O. Rs. 8,460 includes the
amount received as insurance claim.
3)No direct entry will be passed in Branch A/ c for Goods lost
Rs.750: it is indirectly adjusted in the closing stock of the Branch
Rs.1,000.
Illustration No. 5:
Idea Traders, Mumbai opened a branch at Delhi on 1st
January 2017. The following information is available in respect of
the br anch for the year 201 7.
Transactions during the year Rs.
Goods sent to branch 85,000
Cash sales at the branch 45,000
Credit sales at the branch 75,000
Salaries of the branch staff paid by H. O. 16,500
Office expenses of the branch paid by H. O. 12,00 0
Cash remittance to branch towards petty cash 6,000
Closing Balance on 31stDec, 201 7
Petty cash at branch 500
Debtors at branch 5,000
Stock at branch 27,000
Prepare Branch A/c to show the profit or loss from the Branch for
the year 201 7.munotes.in
96
Solut ion:
(In the Books of Head Office at Mumbai)
Dr. Delhi Branch A/c. Cr.
Date Particulars Rs. Date Particulars Rs.
To Goods Sent to
Branch85,000 By Cash A/c
To Cash A/c Cash Sales 45,000
Salaries 16,500 Realisation from
Office
expe nses12,000 28,500 debtors 70,000 1,15,000
To Cash A/c 6,000
(for petty expenses) By Balance c/d
Petty cash 500
To General P & L A/c 28,000 Stock 27,000
Debtors 5,000 32,500
1,47,500 1,47, 500
Dr. Memorandum Deb tors A/c. Cr.
Date Particulars Rs. Date Particulars Rs.
ToCredit Sales 75,000 By Cash Received 70,000
By Balance c/d. 5,000
75,000 75,000
Illustration No. 6:
From the following details relating to the Delhi Branch for the
year ending on 3 1stMarch 20 18, prepare the Branch Account in the
books of the Head Office.
Particulars Rs. Particulars Rs.
Stock as on 1 -4-2017 25,000 Cash received from
Debtors65,000
Debtors as on 1 -4-2017 10,000 Cash paid by Debtors
directly to H.O.5,000
Fumiture as on 1 -4-2017 6,000 Stock as on 31 -3-201815,000
Petty Cash as on 1 -4-
20171,000 Goods returned by
Branch2,000
Insurance Pre -paid as on
1-4-2017300 Goods returned by
Debtors1,000munotes.in
97
Salaries outstanding as
on 1-4-20174,000 Cash sent to Branch
for Exp enses:
Goods sent to branch
during 20 17-20182,00,000 -Rent (Rs.800 p.m.) 9,600
Cash Sales during the
year2,70,000 -Salary
(Rs.4,000 p.m.)48,000
Total Sales 3,50,000 -Petty Cash 2,000
Petty Cash Expenses 2,200 Insurance
(upto June, 20 18)1,200
Discount allowed to
Debtors500
Goods costing Rs. 2,500 were dama ged in transit and a sum
of Rs. 2,000 was recovered from the insurance company in full
settlement of the claim. Depreciate the Furniture @ 10% p.a.
Solution:
IN THE BOOKS OF H.O.
Dr. Delhi Branch Account Cr.
Particulars Rs. Particulars Rs.
To Balance
b/d:By Balance b/d
(O/S Salary)4,000
Stock 25,000 By Bank
(Remittances):
Debtors 10,000 -by Branch
Cash (WN 3)3,37,000
Furniture 6,000 -by Branch
Debtors
Petty Cash 1,000 directly to H.O. 5,000
Prepaid
Insurance300
To Goods
Sent to
Branch2,00,000
To Bank
(Remittance
by H.O.)By Goods Sent
to Branch
(returns by
branch) 2,000
Rent 9,600 By Balance c/d:
Salary 48,000 Stock 15,000
Petty Cash 2,000 Debtors (WN 1) 18,500munotes.in
98
Insurance 1,200 60,800 Petty Cash
(WN 2)800
To Balance
c/d (O/S
salary)4,000 Furniture
(6,000 -600)5,400
To Net Profit
tfd. to
General P &
L A/c
(Bal. Fig.)80,900 Prepaid
Insurance
(WN 4)300 40,000
3,88,000 3,88,000
Working Notes :
The missing figures are ascertained by preparing memorandum
ledger accounts as shown below :
(1) Ascertaining debtors closing balance :
Dr. Delhi Branch Debtors Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/ d 10,000 By Cash A/c
(collection by H.O.)5,000
To Credit Sales 80,000 By Branch Cash A/c 65,000
(Total 3,50,000 -Cash
2,70,000)(collection by Branch)
By Returns Inwards 1,000
By Discount Allowed 500
By Balance c/d
(Balancing figure)18,500
90,000 90,000
(2) Ascertaining petty cash closing balance :
Dr. Delhi Branch Petty Cash Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 1,000 By Petty Expenses A/c 2,200
To Brach Cash A/c 2,000 By Balance c/d
(Balancing figure)800
3,000 3,000munotes.in
99
(3)Ascertaining remittance to H. O .:
Dr. Delhi Branch Cash Accou nt Cr.
Particulars Rs. Particulars Rs.
To Cash Sales 2,70,000 By Salaries to the
previous year4,000
To Collection from
Debtors65,000 By Salaries for the
current year44,000
To Remittance from H.
O.60,800 By Rent 9,600
To Insurance Claim 2,000 By Petty Cash 2,000
By Insurance 1,200
By Cash H.O. 3,37,0 00
3,97,800 3,97,800
Illustration No. 7:
M/s R. T. Ltd has a head office at Poona and branc h at
Nasik. The head office sends goods to branch at price to show
profit of 2.5% on cost. The following transactions relate to the year
2017. All the information’s given below is at invoice price.
Stock on 1stJanuary, 20 17Rs.20,000 and on 31st
Decembe r, 20 17Rs.25,000. Goods were sent to branch
Rs.1,00,000 of which goods worth Rs.5,000 were returned. Branch
sold goods for Rs.82,000 on credit but customers returned goods
worth Rs.2,000. On 1stJanuary, 20 17;Rs.2,000. On 1stJanuary,
2017;Rs. 28,00 0 was due from customers. During the year,
Rs.88,200 was received from customers after allowing discount @
2% special discount of Rs.5,000 was allowed to one customer.
Cash sales amounted to Rs.10,000. Branch remitted entire sum
received by it. Rs.6,000 was sent from Poona to Nasik to pay rent
Rs.2,400; salary Rs.2,400 ; sundry expenses Rs.1,200.
You are required to prepare Branch Account & Goods sent
to Branch Account.munotes.in
100
Solution
In the book s of M/s. R.T.Ltd.
Nasik Branch A/c
Particulars Rs. Rs. Particulars Rs. Rs.
To Balance b/d By Balance b/d
Stock 20,000 Stock Reserve 4,000
Debtors 28,000 48,000 By Goods sent to Branch 5,000
To Goods sent to Branch 1,00,000 By Cash
To Cash 6,000 from Debtors 88,200
To P & L A/c (Bal. Fig .) 5,200 from Cash Sale 10,000 98,200
To Balance c/d By Goods sent to branch 19,000
Stock Reserve 5,000 (Profit Element)
By Balance c/d
Stock 25,000
Debtors 13,000 38,000
1,64,200 1,64,200
Goods sent to Branch A/c
Particulars Rs. Particulars Rs.
To Nasik Branch 5,000 By Nasik Branch A/c 1,00,000
To Nasik Branch
(Profit Element 19,000
on 95,000@20%)
To Trading A/c
(Balance Figure)76,000
1,00,000 1,00,000
Illustration No.8:
Mandar Chemicals has a branch at P atna. Goods are
invoiced to the Branch at cost plus 30%. Fr omfollowing details
prepare Branch Account.munotes.in
101
Particulars Rs. Particulars Rs.
Stock on 1 -1-2017 26,000 Goods returned to H.O. 6,500
Debtors on 1 -1-2017 50,000 Goods returned by Branch
Debtors to Branch3,000
Cash -in-Hand on 1 -1-2017 250 Total Sales of the Branch 2,23,000
Goods sent to Patna
Branch1,30,000 Cash Sales 1,70,000
Cheques sent to Branch Expenses paid by Branch 23,000
a) Salary 3,000 Collection from Debtors 84,000
b) Rent 2,000 Closing Stock on 31 -12-2017 1,04,000
Furniture Purchased by
H.O. for the Branch10,000 Cash Balance on 31 -12-2017 130
Depreciation on Furniture at 10% p.a.
Solution :
In the books of Mandar Chemicals
Dr. Patna Branch Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d:
Stock 26,000By Stock Reserve A/c b/d
(26,000 x 30/130) 6,000
Cash 250 By Goods sent to Branch
A/c30,000
Debtors 50,000 (Load:1,30,000 x 30/130)
To Goods sent to Branch A/c 1,30,000 By Goods sent to Branch
A/c(returns)6,500
To Goods sent to Branch A/c 1,500 By Cash (WN 1) 2,31,120
(Load 6,500 x 30/130) By Balance c/d:
To Bank A/c; Closing Stock 1,04,000
Salary 3,000 Cash 130
Rent 2,000 Debtors (WN 2) 16,000
Furnitre 10,000 15,000 Furniture (10,000 –Depr.
1,000)9,000
To Stock Reserve c/d 24,000
(Load:Cl, Stock
104,000 x30/130)
To General P & L A/c (bal. fig.) 1,56,000
4,02,750 4,02,750munotes.in
102
Working Notes:
(1) Patna Branch Cash/Bank Account
Dr. Cr.
Particulars Rs. Partic ulars Rs.
To Balance b/d 250 By Expenses 23,000
To Cash Sales 1,70,000 By Cash sent to H.O.
(bal. flg.)2,31,120
To Debtors 84,000 By Balance c/d 130
2,54,250 2,54,250
(2) Patna Branch Total Debtors Account
Dr. Cr.
Particula rs Rs. Particulars Rs.
To Balance b/d 50,000 By Sales Returns 3,000
To Credit Sales 53,000 By Cash 84,000
(2,23,000 -1,70,000) By Balance c/d (bal. fig.) 16,000
1,03,000 1,03,000
(3) Profit or Loading:
Cost + Profit = Invoice Price
100 + 30 = 130
So, Profit or loading is 30/130 of Invoice Price.
Illustration No.9:
Raj Oils Ltd. opened a branch at Shrinagar on 1stJanuary,
2017. Goods are invoiced to the branch at cost plus 33 1/3 % which
is the selling price. From the following particul ars relating to 201 6
and 201 7, ascertain the profit made of Shrinagar Branch in the two
years and show how the relevant items will appear in Company’s
Balance Sheet on 31stDecember, 201 6and 201 7.munotes.in
103
Particulars 2016
Rs.2017
Rs.
Goods sent to Shrin agar branch
during the year at selling price... … … 45,000 70,000
Sales at branch :
Cash … … … 15,000 30,400
Credit … … … 19,600 41,000
Cash received from debtors … … … 15,400 32,300
Discount allowed to customers … … … 200 500
Cash sent to branch for expenses
(including Petty Cash)… … … 6,000 10,000
Goods returned by the Branch
(Invoice price)… … … 1,500 -
Stock at 31stDecember at invoice
price… … … 8,400 6,900
Petty Cash at branch on 31st
December… … … 90 40
(Mar, 96, adapted)
Solution:
In the books of H.O.
Dr. Shrinagar Branch Account Cr.
Particulars 2016
Rs.2017
Rs.Particulars 2016
Rs.2017
Rs.
To Balance b/d
Stock (IP) - 8,400By Stock Reserve
A/c
(Load on Opening
Stock)2,100
Debtors - 4,000 By Cash/Bank
Petty Cash - 90(Remittance
Received)
To Goods sent
to Branch A/c
(IP)45,000 70,000 -Cash Sales 15,000 30,400
To Cash 6,000 10,000 -Collection from
Debtors15,400 32,300
To Goods Sent
to branch A/c375 -By Goods Sent to
Branch A/c11,250 17,500
(Load on
Returns)(Load on Goods
Sent)munotes.in
104
To Stock
Reserve A/c2,100 1,725 By Goods sent to
Branch A/c1,500 -
(Load on
Closing Stock)(Returns at IP)
To Net Profit
transferred toBy Balance c/d:
General P & L
A/c2,165 7,225 Stock (IP) 8,400 6,900
Debtors (WN 1) 4,000 12,200
Petty Cash 90 40
55,640 1,01,440 55,640 1,01,440
Working Notes :
(1) Dr. Shrinagar Branch Debtors Account Cr.
Particulars 2016
Rs.2017
Rs.Particulars 2016
Rs.2017
Rs.
To Bal ance b/d -4,000 By Cash received
from customers15,400 32,300
To Credit Sales 19,600 41,000
By Discount 200 500
By Balance c/d 4,000 12,200
(Balancing figure)
19,600 45,000 19,600 45,000
(2) Dr. Shrinagar Br anch Petty Cash Account Cr.
Particulars 2016
Rs.2017
Rs.Particulars 2016
Rs.2017
Rs.
To Balance b/d - 90By Petty Cash
Expenses5,910 10,050
To H.O. Cash 6,000 10,000 (Balancing figure)
By Balance c/d 90 40
6,000 10,090 6,000 10,090
(3)H. O. invoices goods at 33. 33% over cost.
Profit is ¼ or 25% of Invoice Price.
Illustration No. 10:
Sarda Brothers ,Bombay has a branch at Nagpur. All goods
required for sale at Nagpur Branch are supplied from Bombay at
cost plus 25% and all cash received at the Branch is banked da ily
in the Head Office Account opened in a Bank at Nagpur.munotes.in
105
From the following particulars, give the Branch Account and
Branch Debtors Account.
Particulars Rs.
Stock (1.1.20 17)
Debtors (1.1.20 17)
Petty Cash (1.1.20 17)
Returns from Customers
Goods invoice d to Branch
Return edGoods to Head Office
Bad Debts
Cash Sales
Branch Expenses paid by Head Office
Rent
Salary
Sundries
Allowances given
Petty Cash Expenses at Branch
Total Sales
Remittances to branch for Petty Cash
Stock (31.12.20 17)
Debtors (31.12.2 017)79,000
1,13,000
900
4,000
2,50,000
10,000
1,000
14,000
14,000
15,000
7,000
4,500
2,400
3,49,000
2,800
84,000
1,95,100
Solution
In the books of Sarda Brothers Bombay
Dr. Nagpur Branch A/c Cr.
Particulars Rs. Particulars Rs.
To Branch Stock 79,000 By Goods sent to branch 10,000
To Branch Debtors 1,13,000 By Cash A/c
To Branch Petty Cash 900 i) Cash Sales 14,000
To Goods sent to Branch A/c 2,50,000 ii) Collection
from Debtors2,43,400 2,57,400
To Cash A/c By Branch Stock 84,000
Rent 14,000 By Branch Debtors 1,95,100
Salary 15,000 By Branch Petty Cash 1,300
Sundry Expenses 7,000 36,000 By Stock Reserve
(Loading)15,800
To Petty Cash A/c 2,800 By Goods sent to branch
(Loading)50,000
To Stock Reserve (Loading) 16,800
To G oods Sent to Branch
(Loading ) 2,000
To General Profit & Loss A/c
(Balance Figure) 1,13,100
6,13,600 6,13,600munotes.in
106
Dr. Branch Debtors A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 1,13,000 By Cash A/c (Balance Figur e) 2,43,400
To Credit Sales 3,35,000 By Return Inward 4,000
By Bad Debts 1,000
By Allowances to Customers 4,500
By Balance c/d 1,95,100
4,48,000 4,48,000
Loading :
Cost + Loading = Invoice Price
100 + 25 = 25
25 1
125 5Loading
Illustration No. 11:
J. S. Trading Company ,Nagpur, invoices goods to its Kanpur
Branch at cost which sells on credit as well as for cash. From the
following particulars ,prepare Branch Stock Account, Branch
Debtors Account, Branch Expenses Account. Cash is immediately
remitted by Branch to Head Office. Expenses are paid direct lyby
Head Office.
Particulars Rs.
Stock at Branch on 1 -1-2017 … … … … 7,560
Goods from Head Office … … … … 35,500
Goods returned by customers … … … … 300
Total Sales …… … … 46,760
Cash Sales … … … … 16,750
Goods returned to Head Office … … … … 350
Stock at Branch on 31stDecember 20 17 … … … … 6,950
Debtors on 1stJanuary 20 17 … … … … 13,000
Cash paid by customers … … … … 24,600
Discount and commission to customer s … … … … 1,360
Bad Debts … … … … 300
Rent Rates and Taxes … … … … 900
Salaries and Wages etc. … … … … 3,650munotes.in
107
Solution :
Dr. Branch Stock Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d
(Stock on 1 -1-2017)7,560 By Cash (Cash sale s) 16,750
To Goods sent to branch
A/c35,500 By Branch Debtors (Credit
Sales)30,010
To Branch Debtors A/c
(Sales Return)300 By Goods sent to branch
A/c(Return from Branch )350
To Gross Profit transferred
toProfit & Loss A/c10,700 By Balance c/d (s tock on
31-12-2012)6,950
54,060 54,060
Dr. Branch Debtors Account Cr.
Particulars Rs. Particulars Rs.
To Balance b/d (Debtors
1-1-2017)13,000 By Cash 24,600
To Branch Stock A/c 30,010 By Branch Stock A/c
(Sales Return)300
(Credit Sales 46,7 60–
16,750)By Discount and Commission 1,360
By Bad Debts 300
By Balance c/d (Bal. Fig.) 16,450
43,010 43,010
Dr. Branch Expenses Account Cr.
Particulars Rs. Particulars Rs.
To Bad Debts 300 By Branch Profit & Loss A/c 6,210
To Discount and
Commission A/c1,360
To Cash A/c.
Rent, Rates and Taxes 900
Salaries and Wages 3,650
6,210 6,210
Dr. Branch Profit and Loss Account Cr.
Particulars Rs. Particulars Rs.
To Branch Expenses A/c 6,210 By Gross Profit transferred 10,70 0
To Net Profit transferred to
General Profit & Loss A/cfrom Branch Stock A/c
4,490
10,700 10,700munotes.in
108
Dr. Goods Sent to branch Account Cr.
Particulars Rs. Particulars Rs.
To Branch Stock A/c 350 By Branch Stock A/c 35,500
To Trading A/c 35,150
35,500 35,500
Illustration No. 12:
Following particulars are related to Solapur Branch for the
year ended 31stMarch, 20 18. Goods are invoiced to Branch @ cost
plus 50%. Branch remits all cash received to the head office and all
expenses are m et by the Head office. From the following
particulars, prepare the necessary accounts under the stock and
Debtors method.
Transactions during the year. Rs.
Stock (at invoice price) on 1stApril , 2017 93,000
Branch Debtors on 1stApril, 2017 68,000
Goods invoiced to branch at cost 3,40,000
Sales at Branch :
Cash Sales 2,50,100
Credit Sales 3,10,000
Cash received from Debtors 3,04,000
Goods returned by Debtors 12,000
Goods returned by Branch to HO 1,500
Shortage of Stock 4,500
Discount allowed to Debtors 2,000
Expenses at Branch 54,000munotes.in
109
Solution :
In the Books of Pune Head Office
Dr. Solapur B ranch Stock A/c. Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 93,000 By Sales
To Goods Sent to
Branch5,10,000 Cash 2,50,100
To Branch Debtors A/c 12,000 Credit (Deb.) 3,10,000 5,60,100
By Goods Sent to Br. A/c.
(Returns)1,500
By Branch Adj. A/c
(Shortage)4,500
By Balance c/d 48,900
6,15,000 6,15,000
Dr. Solapur B ranch A/c. Cr.
Particulars Rs. Particulars Rs.
To Balance b/d 68,000 By Branch Cash 3,04,000
To Branch Stock A/c 3,10,000 By Branch Sto ckA/c 12,000
(Credit Sales) (Sales Returns)
By Discount 2,000
By Balance c/d 60,000
3,78,000 3,78,000
Goods Sent to Solapur Branch A/c .
Dr. Cr.
Particulars Rs. Particulars Rs.
To Branch Stock A/c. 1,500 By Branch Stock A/c 5,10,000
(Returns) 1,70,000 By Goods Sent to Branch 500
To Branch Adj s. A/c 3,39,000
5,10,500 5,10,500
Solapur Branch Cash A/c.
Particulars Rs. Particulars Rs.
To Sales 2,50,100 By Head Office Cash A/c. 5,54,100
To Debtors 3,04,000
5,54,100 5,54,100munotes.in
110
Solapur Branch Adjustment A/c.
Particulars Rs. Particular s Rs.
To Branch Stock Res. A/c. 16,300 By Branch Stock Res.
A/c.31,000
(closing Stock) 2.(e+f) Opening Stock) 2. (d)
To Goods Sent to Br. A/c. 500 By Goods Sent to Br. A/c. 1,70,000
To Branch Stock A/c. 4,500 2(a)
(Shortage)
To Gross Profit c/ d 1,79,700
2,01,000 2,01,000
Solapur Branch Profit & Loss A/c.
Particulars Rs. Particulars Rs.
To Discount 2,000 By Gross Profit 1,79,700
To Branch Exp. A/c 54,000
To Net Profit 1,23,700
1,79,700 1,79,700
Note : (1) Loading (20%on CP = 1/3rdof IP)
Inv Price
Rs.(1/3rd)Rs.
(a) Goods sent to Branch 5,10,000 1,70,000
Goods returned 12,000
4,98,000 4,000
1,66,000
(b) Goods return to Branch 1,500 500 Cost
(c) Shortage 4,500 1,500 3,000
(d) Stock -Openi ng 93,000 31,000
(e) -Closing 48,900 16,300
(2)Assumption : Shortage is of Normal (nothing abnormal)munotes.in
111
6.2EXERCISES
1.M/s Gupta Brothers are having their Head Office at Delhi and
Branch at Calcutta. The following are the transactions of t he
Head Office with Branch for the year :
Particulars Rs. Particulars Rs.
Stock at Branch as on 1stJan. 30,800 Amount sent to Branch :
Debtors at the Branch as 1st
January16,500 -Salary 7,440
Petty Cash as on 1stJan. 500 -Rent 2,400
Goods suppl ied to the Branch 1,51,200 -Petty Cash 3,000
Remittance from Branch : Stock at Branch as on
31stDec.23,150
-Cash Sales 10,500 Sundry Debtors at the
Branch as
-Realisation of Debts 1,57,740 on 31stDec. 50,460
Petty Cash an on 31st
Dec.750
Show the Branch Account in the books of the Head Office.
(Ans.: N.P. Rs.30,760)
2.From the following information, prepare Delhi Branch Account in
the books of head office for the year ending 31stMarch, 20 18:
Particulars Rs. Particulars Rs.
Opening Stock (at cost) 1,78,000 Discount allowed to Customers 500
Opening Debtors 14,000 Bad Debts written off 1,000
Opening Petty Cash 250 Credit Sales 7,29,400
Furniture
(in the beginning)6,000 Cash Sales 32,000
Opening Creditors 6,000 Petty Expenses paid by Branch 8,000
Goods sent to Branch
(at Cost)5,22,000 Cheques sent to Branch of
expenses :
Goods returned by
Branch to H.O. (at cost)7,800 Salaries 30,000
Goods returned by
Customers to Branch5,700 Rent and Insurance 12,000
Cash r eceived by
Branch from its
customers6,11,000 Petty Cash 7,870munotes.in
112
Goods are sold to customers at cost plus 50%. Depreciate the
furniture @ 10% p.a.
(Ans.: N.P. Rs.1,99,800 Cl. bal. 1,25,200, Cl. Petty -Cash 120)
STOCK & DEBTORS
3.Mumbai Soap Mill s Ltd has two branches at Kolhapur and at
Pune. Goods are invoiced to branches at cost plus 50%. From
the following particulars ,prepare necessary accounts under
“Stock and Debtor System” to find out profit earned by the
branches.
Particulars Rs. Pune
Rs.
Stock on 1.4.201 7(at Invoice Price) 9,300 15,600
Debtors on 1.4.201 7 6,800 8,700
Goods invoiced to Branches at cost 34,000 36,000
Cash Sales 25,010 35,000
Credit Sales 31,000 30,100
Cash from Debtors 30,400 29,800
Goods returned by Debtors 1,200 1,500
Goods returned by branch to H.O. 1,500 -
Goods transferred from Pune to Kolhapur 2,100 2,100
Surplus in stock - 300
Shortage in stock 450 -
Discount allowed to customers 200 350
Expenses at branches 5,400 6,700
[Ans. Branch Stock Accoun t Debi tBalance L Kolhapur Rs.5,640; Pune Rs.
4,200. ,Br. Debtors on 31.3.20 13: Kolhapur Rs. 6,000 ; Pune Rs. 7,150 .
Gross profit : Kolhapur Rs.18,270 ; Pune Rs.21,200 .Net Profit : Kolhapur
Rs.12,370; Pune Rs.14,350 ]
4.Ruchika Ltd. sends goods to its b ranch at cost plus 25%. The
following particulars are available in respect of the branch for
the year ended 31stMarch, 20 18.
Particulars Rs.
Opening stock at Branch at cost to the Branch 80,000
Goods sent to Branch at Invoice Price 12,00,000
Loss in transit at invoice price 18,000
Pilferage at invoice price 6,000munotes.in
113
Sales 12,10,000
Expenses 60,000
Closing Stock at Branch at cost to the Branch 40,000
Recovery from insurance company against loss in
transit10,000
Prepare :
i)Branch Stock Acco unt.
ii)Goods Sent to Branch Account.
iii)Branch Adjustment Account.
iv)Branch Profit & Loss Account in the books of H.O.
[Ans. Gross Profit Rs.2,43,800. Net Profit Rs.1,77,000]
5.Ferwani Traders with head office in Kolhapur had a branch at
Satara.
Following information is provided :
(1) Mark -up on cost by Head Office on goods sent
to branch33 1/3%
(2) Goods sent to branch at invoice price Rs.8,70,000
(3) Goods Returned by branch debtors Rs.24,000
(4) Goods Returned by branch Rs.32,000
(5)Stock on hand at branch (1 -4-2016) (at cost) Rs.9,000
(6) Stock on hand at branch (Invoice price)
(31-3-2017)Rs.45,000
(7) Cost of free sample given by branch Rs.3,000
(8) Expenses at Branch Rs.34,000
(9) Goods of invoice valueRs.15,000 were in transit from HO to
branch on 31 -3-2017.
(10) Branch Manager was allowed to buy goods for own use at a
special discount of 10%; branch manager availed of the
concession and bought goods costing Rs.12,000 during the
year.
Prepare Branch Stock Account, Branch Debtors Account and
Branch Profit and Loss Account.
(Mumbai TY April 2001, adapted )
[Ans.: Profit Rs.1,57,900 )
munotes.in
114
Unit-7
FIRE INSURANCE CLAIM I
UNIT STRUCTURE
7.0 Objectives
7.1 Introduction
7.2 Requisite of Insurance
7.3 Procedure of Claim for Loss of Stock
7.4 Steps for Calculating the Claim
7.5 Exercise
7.0OBJECTIVES
After studying the unit t he students will be able:
To introduce the topic
To know about the term fire insurance claim
To understand the meaning of Average Clause
To make ready for calculating the claim amount
To illustrate the practical problems
7.1INTRODUCTION
Insurance contrac t is a contract of indemnity. Under this
contract, an insurance company indemnifies the insured for loss of
property due to the reasons like fire, flood, earthquake, etc. A
business organisation usually get itsproperty insured against the
risk of fire and other natural calamities. On the occurrence of fire or
accident, the business organisation has to estimate the loss and
lodge a claim with insurance company .
Losses due to fire are of two types:
Loss of assets and
Loss of profit
Loss of assets affects so badly on business activities which
ultimately affects profits of the business. Therefore the business
concerns take a fire insurance policy in respect of,
Loss of stock only,
Loss of profit only, OR
A comprehensive or Package Policy w hich cover s loss of all
the items i.e.stock, other assets, profit, expenses etc.munotes.in
115
7.2REQUISITE OF INSURANCE
A fire at the place of business place destroys assets like
building, furniture and machinery. It also destroys records. It also
disturbs the normal funct ioning of the business. Therefore, the
prudent businessman usually chooses to take insurance policy in
order to cover the risk of loss due the occurrence of the fire. If
unfortunately , the fire broke out, the businessm an gets
compensation equal to the amou nt of loss sustained. In order to
receive compensation, the businessman has to lodge the claim with
the insurance company for loss of stock. In order to lodge the claim,
businessman has to find out the stock on the date of fire. In
absence of the proper re cord of the stock, it becomes challenging
to compute the amount of claim.
7.3PROCEDURE OF CLAIM FOR LOSS OF STOCK
I.If proper stock records are maintained orif records are not
destroyed by fire: -
In such a case calculation of claim will be as follow s:
A.Calculate the amount of stock lost by fire:
B.Calculation oftheamount of claim:
a)If there isno average clause then
Stock lost by fire = Amount of claim
b)If there is average clause then
Amount of claim = Policy Amount/ Stock on the Date of Fire × Stock
lost by fire
II.If proper stock records are not maintained or if records are
destroyed by fire: -
A.Calculation of the Percentage of Gross Profit:
Determine the Gross Profit to Sales ratio. In absence of any
information ,itisrequired to take the figure of pervious year for
determining the percentage of gross profit .If the information about
sale and gross profit is available ,it isessential to take average of
these figures.
Prepare a Trading Account in the usual manner. Following are
some of the items associated with preparation of Trading Account:Particulars Amounts
Stock on the date of fire xx
(-) Salvage xx
Stock lost by fire xx
munotes.in
116
(i) Stock:
Stock contains stock o fraw materials, work in progress, finished
goods, etc. In absence of anyclear information, stock is considered
as stock of finished goods only. Such stock should be valued at
cost. If any other basis is given, convert it to cost.
(ii) Purchases less returns.
(iii) Wages.
(iv)Manufacturing expenses.
(v) Sales less returns.
(vi)Gross profit.
The rate of Gross profit is the key fordetermining the stock on
the date of fire. Therefore, there should be regularity in the gross
profit ratio.
B. Memorandum Trading Account
It is required to p repare Memorandum Trading Account up to
the date of fire by gathering figures in respect of opening stock,
purchases, direct expenses and s ales from the record. In case the
record is destroyed by fire, the information can be discovered from
the documentary evidence.
Theestimated value of stock on the date of fire is the balancing
figure on the credit side of the Memorandum Trading Account .
While preparing Memorandum Trading Account, following points
should be taken into consideration:
(i) Period:
This Account is prepared for the period from last date of accounts
to the date of fire which is given in the problem.
(ii) Opening Stock :
The op ening stock should be valued at cost.
In case of undervaluation of stock:
Cost of stock = (100 \100–Rate of Undervaluation) × Value of stock
In case of overvaluation of stock:
Cost of stock = (100 \100 + Rate of Overvaluation) × Value of stoc k
(iii) Purc hases:
Purchases should be taken into account for the period from
last date of accounts to the date of fire. Goods received but not
accounted should be added to purchases. If the amount ofmunotes.in
117
purchases is not given, it can be calculated by preparing Credit ors
Account.
If purchases are not given ,it should be decided by preparing
creditors A/c as follows.
Creditors A/c
Particulars Amounts Particulars Amounts
To Bank A/c XX By Balance b/d XX
To Discount A/c XX By Purchases XX
To Bills Payable A/c XX (Bal. Fig.)
To Balance c/d XX
XX XX
(iv) Sales:
Sales should be taken into account for the period from last
date of accounts to the date of fire. Goods included in the above
sales but not delivered should be deducted from sales.
Misappropriated cash sales and goods delivered but not recorded
should be added to sales.
If sales are not given ,it should be ascertained by preparing
Debtors A/c as follows:
Debtors A/c
Particulars Amounts Particulars Amounts
To Balance b/d XX By Bank A/c XX
To Sales A/c XX By Discount A/c XX
(Bal.fig.) By Sales Returns A/c XX
By Bills Receivable A/c XX
XX XXParticulars Amounts
Purchases xx
Less: Goods included in purchases but not actually
receivedxx
Add: Unrecorded Purchases xx
Less: Purchase Returns xx
Purchases to be debited to Trading A/c xx
Particulars Amounts
Sales xx
Less: Goods sold but not del ivered xx
Less: Sale of assets xx
Add: Unrecorded sales xx
Less: Sales returns xx
Sales to be credited to Trading A/c xxmunotes.in
118
(v)Wages:
Wages for the period from the last accounts to the date of
fire should be debited to Memorandum Trading Account.
Amount of wages should be calculated as follows:
(vi) Manufacturing Expenses:
Manufacturing expenses or factory expenses for the period from
last date of accounts to the date of fire should also be c onsidered.
(vii) Gross Profit and Gross Profit Ratio:
Gross profit ratio should be at a certain percentage on cost or on
sales. Consistent gross profit ratio over the past years is essential
to find out stock on the date of fire. Gross profit ratio shoul d be
adjusted under the following circumstances:
(a)Different gross profit ratios in past years should be averaged out.
(b) Change in material prices.
(c) Change in expenses ratio.
(d) Change in sales price.
(e) Different gross profit ratios for different goods.
The ratio of Gross Profit for the purpose of claim should be at
normal rate.
(i) If information about the Gross Profit Ratio of the immediately
preceding year is given, then the Gross Profit Ratio of the previous
year should be taken as a normal r ate of Gross Profit.
(ii) If the rate of Gross Profit of previous years has been falling from
year to year consistently then it is not proper to consider the
average rate of gross profit of previous years as normal rate of
gross profit. In such a situatio n, make an estimate of the rate of
gross profit that is likely to prevail in the current year and consider
that rate as t he normal rate of gross profit , e.g., gross profit rates
for three years have been 25%, 2 0% and 15%. In this case,
average will be 2 0%, Instead of taking average reasonable gross
profit rate likely to prevail will be 1 0%.The abo ve procedure should
be followed, i n case ofcontinuous rise in the rate of gross profit.Particulars Amounts
Wages paid xx
Less: Wages i ncurred for installation of machinery xx
Less: Outstanding wages of the last year paid during
the yearxx
Add: Outstanding wages for the current year xx
Wages to be debited to Trading A/c xx
munotes.in
119
(viii) Abnormal Goods:
Goods which are slow moving or which are damaged are called
as abnormal goods. Valuation of such goods may be at cost or at a
lower value as given. It becomes necessary to adjust purchases,
sales and stock on account of abnormal goods.
Abnormal items are treated as follows:
1. If abnormal items are inc luded in closing stock:
(a) Deduct value of abnormal items from closing stock.
(b) Deduct cost of abnormal items from purchases.
(c) Deduct sale of abnormal items from sales.
2. If abnormal items are included in opening stock:
(a) Deduct value of abnormal items from opening stock.
(b) Deduct sale of abnormal items from sales.
(c) Deduct value of abnormal items ,if any, from closing stock.
3. If abnormal items are written off to some extent from closing
stock:
(a) Deduct the value of remaining items from c losing stock.
(b) Deduct cost of abnormal items from purchases.
(c) Deduct sale of abnormal items from sales.
(ix) Stock:
Balancing figure in Memorandum Trading Account after adjustment
of gross profit is the stock of normal goods. Then ,it should be
adjusted for :-
(i)Goods with consignee or third party and
(ii)Salvage, i. e. realisable value of scrap or partly damaged goods.
The adjusted stock is the amount of loss suffered.
Memorandum Trading A/c
For Period __
Particulars Amounts Particulars Amounts
To Opening Stock XX By Sales
Less: ReturnsXX
To Purchases
Less: ReturnsXX By Goods Distributed as
Free SamplesXX
To Wages XX By Stock Sent on
ConsignmentXX
To Carriage XX By Bills Receivable XX
To Gross Profit C/d XX By Stock Sent on Approval XX
XX By Closing Stock (Stock
on the date of fire)
(Bal.fig.)XX
XX XXmunotes.in
120
C. Loss of Stock
Deduct the amount of salvage from the value of stock on the
date of fire to get the value of loss of stock.
Loss of Stock = Stock on the Date o f Fire –Salvage.
D. Average Clause
The insurance policy is taken for compensating probable
loss in the future and not to earn profit. Therefore, a fire insurance
policy generally includes an average clause in order to discourage
under insurance of stock . As per this clause, the insurance
company pays compensation to the insured proportionately if the
value of stock or asset on the date of fire is more than the amount
of insurance policy.
Formula applied in case of an Average Clause:
Claim = (Value of po licy / Value of stock on the date of fire) × Value
of stock destroyed by fire
For example :-suppose stock of Rs.2,00,000 may be insured say
for Rs.1,50,000. So if fire occurs and the actual loss is
Rs.1,30,000 the insured can recover the amount of loss if there is
no ‘average clause’ in the policy.
To discourage such tendency of under -insurance and
prevent the misuse of insurance there is an ‘Average Clause’
included in the policy. The effect of this clause is that the ins ured
does not get the full amount of loss, even though the policy amount
is more than the loss. The insured gets only proportionate amount
of loss. The base of this principle is that in case of under -insurance
the owner of the property himself acts as an i nsurer to the extent
the property has not been insured with the insurance company. In
the above example insured is self -responsible for the amount of the
stock
Rs.50,000 (Rs.2,00,000 –Rs.1,50,000) as he has under -
insured the stock. The formula for calcu lating the amount of claim if
there is Average Clause:
Amount of claim = Sum Insured (amount of claim) X Actual loss
Total stock on the date of fire
= 1,50,000 / 2,00,000 X 1,30,000
=Rs.97,500munotes.in
121
7.4STEPS FOR CALCULATING THE CLAIM
1. Prepare the Trading A/c for the previous accounting years &
calculat ethe gross profit.
2. Calculate the Gross Profit Ratios for the previous accounting
years & choice aGross Profit Ratio for the Memorandum Trading
Account.
3. In order to ascertain the closing stock (i.e.) stock on hand as on
the date of fire ,prepare a Memorandum Trading A/c. This A/c is
from the commencement of the accounting year to the date of fire.
4. Record everything that is applicable in the Memoran dum Trading
A/c.
5. Calculate the gross profit as a percentage of sales on the basis
ofGross Profit Ratio in step 2.
6. The Memorandum Trading A/c s hould be balanced. The
balancing figure would represent closing stock.
7. Statement of claim
Closing Stock xx
(-) Salvage (xx)
Amount of Loss or claim xx
8. Average C lause:
If closing stock is greater than the amount of policy .
Claim = (Value of policy / Value of stock on the date of fire) × Value
of stock destroyed by fire
Adjustments:
1. The Stock should always be valued at cost. If there is any
under valuation or overvaluation then the stock should be brought
back to cost.
2. Purchases & Sales should include only purchases & sales of
goods. Purchases & sales of assets should be excluded from the
purchases & sales.
3. Unrecorded purchases and sales if any should be recorded.
4. Purchases should include those goods which have been actually
received before the date of fire. Whether the invoice is received or
not is not material, similarly ,sales should include only those goods
which have been dispatched before the date of fire.munotes.in
122
5. Salvage should be valued either at cost or market value
whichever is less.
6. The insurance company would compensate the insured to the full
extent of firefighting expenses.
7.5EXERCISE S
A)Theory Questions
1.What is the trea tment of Abnormal Goods?
2.Write short note on Memorandum Trading Account .
3.What is the procedure of computing claim for loss of stock ?
4.Write short note on Average Clause.
5.Write short note on need of insurance.
B)Test your understanding by selecting the mos t appropriate
alternative:
1. Salvage refers to --------------
a)Stock destroyed by fire . b)Stock moving fast .
c)Stock saved from fire . d)Stock moving slow.
2. Purchase of furniture should be------------
a)Added to purchase. b) Deducted from purchase.
c)Ignored. d) None of the above.
3. Unrecorded sales should be -------------- .
a)Added to sales. b) Deducted from sales.
c)Ignored. d) None of the above.
4. Percentage of Gross Profit should be -------------- .
a)Increasing b) Decreasing
c)Fluctuating d)Constant
5. Percentage of Gross Profit should be at-------------- .
a) cost b)market value
c) marginal price d)realisable value
6. Debtors Account is prepared to find out ---------------- .
a)cash sales b)credit sales
c)cash purchases d)credit purchases
7. Credit purchases should be ascertained from --------------- A/c.
a)Total Creditors b)Total Debtors
c)Cash d)Bankmunotes.in
123
8.Abnormal items included in the closing stock should be --------- .
a)added to sales b)deducted from sales
c)deducted from purchases d)deducted from closing stock
9.Asper Average Clause, insurance company pay compensation
---------------- .
a)more than the loss b)less than the loss
c)equal to loss d)proportionately
10.Goods sent on approval is -------------- .
a)debite d to Memorandum Trading A/c
b)credited to Memorandum Trading A/ c
c)added to sales
d)deducted from sales
11.Carriage on purchase should be -------------- .
a) debited to Memorandum Trading A/c
b) credited to Memorandum Trading A/ c
c)added to sales
d)deducted from sales
12.In fire insurance, compensation is ----------------- .
a)equal to policy amount b)less than policy amount
c)actual loss incurred d)stock on the date of fire
13.Goods sent on consignment are --------- -----.
a) debited to Memorandum Trading A/c
b) credited to Memorandum Trading A/ c
c)added to sales
d)deducted from sales
14.Fire insurance ---------------- .
a)covers risk of loss b)decreases loss
c)prevents loss d)None of the abov e
15.Sales are Rs.50,000, gross profit is 25% on sales, the gross
profit will be ---------------- .
a)Rs.12,500 b) Rs.10,000
c)Rs.25,000 d)None of the above
16.If opening creditors are Rs.30,000, closing creditors are
Rs.45,000 and the payment to creditors Rs.87,500 ,then credit
purchases will be ---------------- .
a)Rs.1,02,500 b) Rs.1 ,00,000
c)Rs.97,500 d)Rs.1,07,500
Answer: 1-c, 2-b, 3-a, 4-d, 5-a, 6-b, 7-a, 8-d, 9-d, 10-b,
11-a, 12-c, 13 -b, 14-a, 15-a, 16-a.munotes.in
124
C)State whether the following statements are True or False :
1) In case of overvaluation of stoc k, it should be brought down to
cost.
2)Insurance avoids loss due to fire.
3)Valuation of stock should be carried out at market value onl y.
4)Goods sent on consignment s hould be credited to Memorandum
Trading A/c for deciding the stock on the date of fire .
5)It is not compulsory to insure the stock .
6)Sale of asset should be debited to Trading A/c .
7)Average Clause do not affect cal culation of claim .
8)Credit purchases are ascertained from Total Debtors A/c .
9)Abnormal goods are fast moving goods .
10)Memorandum Trading A/c is prepared to find out credit sales .
11)Average Clause is not applicable when goods are fully insured .
12)Goods saved from fire as called as abnormal goods.
13)Normal good are slow moving goods.
14)If sales are Rs. 2,00,000 and gross profit is Rs.40,000 ,then
gross profit ratio is 20% .
Answer:
False : 2,3, 6, 7, 8, 9, 10 ,12,13
True : 1,4, 5,11,14
D) Fill in the blanks :
1) Credit purchases can be ascertained from --------------- A/c.
2) Sale of asset should be deducted from --------------- .
3) Slow moving goods are also known as ------------ goods .
4) In fire insurance ,insured get compensat ion equal to ------------
incurred .
5) Purchases should be -------------- to Trading A/c.
6) -------------- Account is prepared to find out credit sales .
7) Wages incurred on installation of machinery should be
deducted from --------- .
8) Goods saved fr om the fire is called as -------------- .
9) --------- businessman takes out an insurance policy .
10) Stock distributed as free sample should be credited to ----A/c.munotes.in
125
11) Memorandum Trading A/c is prepared to find out ---------- on
the date of fire .
12) ------------- = Salvage + Loss of Stock .
Answer:
1) Total Creditors, 2)Sales, 3)Abnormal, 4)loss, 5)debited,
6)Total Debtors, 7)Wages , 8)salvage ,9)Prudent, 10)Trading ,
11)stock, 12)Stock on the date of fire
E)Match the following:
I)
Column A Column B
A)Mark up 1)Fast moving goods
B)Average Clause 2)Stock on the date of fire -
Salvage
C)Abnormal Goods 3)Slow moving goods
D)Loss of Stock 4)Discourage the insurance
5)Based on cost
Answer: I)A-5, B-4, C-3, D-2
II)
Column A Column B
A)Shop soiled goods 1)Total Debtors A/c
B)Insurance 2)Total Creditors A/c
C)Credit sales 3)Contract of Indemnity
D)Credit purchases 4)Abnormal Goods
5)Normal Goods
Answer: II)A-4, B-3, C-1, D -2
munotes.in
126
Unit-8
FIRE INSURANCE CLAIM II
ILLUSTRATION & EXERCISE
Unit Structure:
8.0 Objectives
8.1 Solved Problems
8.2 Exercises
8.0OBJECTIVES
After studying the unit ,students will be able to solve the
practical problems on computation of Fire Insurance Claim .
8.1SOLVED PROBLEMS
Illustration No. 1
Ascertain purchases when cost of goods sold is Rs.1,00,000.
Opening stock : Rs.10,000.
Closing stock : Rs. 2 5,000 .
Solution:
Cost of goods sold = Opening Stock + Purchases –Closing Stock
1,00,000 = 10,000 + Purchases –25,000
1,00,000 –10,000 + 25,000 = Purchases
Purchases = Rs.1,15,000
Illustration No. 2
Find out sales when cost of goods sold is Rs.1,60,000 and Gross
Profit ratio 20%.
Solution:
Gross Profit = 1,60,000 × 20/80
=Rs.40,000
Sales = Cost of Goods Sold + Gross Profit
= 1,60,000 + 40,000
=Rs.2,00,000munotes.in
127
Illustration No. 3
(Calculation of Claim in case of under insurance, using
average clause )
Find out the actual claim in the f ollowing case:
Particulars Amounts
Rs.
Value of stock on the date of fire 8,000
Value of the Insurance Policy 6,000
Value of stock saved from fire 1,000
There is an average clause in the policy.
Solution:
1. Calculation of Actual Amount of Loss
Partic ulars Amounts
Rs.
Value of stock on the date of fire 8,000
Value of stock saved from fire 1,000
Actual Amount of Loss 7,000
2. Calculation of Amount of Claim
Claim = (Value of policy / Value of stock on the date of fire) × Value
of sto ck destroyed by fire
=(5,000 /8,000 )×6,000
=Rs. 3,750
Illustration No. 4
Razavi Traders have taken a fire policy of Rs.4,80,000 covering its
stock in trade. A fire occurs on 31 -3-2018and stock was destroyed
with the exception o f the value of Rs.1,24,080.
Following particulars are available from the books of accounts of
the firm:
Stock on 31 -12-2017Rs.1,80,000
Purchases to the date of fire Rs.7,80,000
Sales to the date of fire Rs.5,40,000
Carriage Inwards to the date of fire Rs.24,000
Commission paid on purchases 2%
Rate of Gross Profit on cost 50%munotes.in
128
The policy was subject to average clause. You are required to
calculate :-
(i) Total loss of stock.
(ii) Amount of claim to be lodged with the Insurance Company.
(iii) Loss suffered due to under insurance
Solution:
Step 1
In the books of Razavi Traders
Memorandum Trading Account
For the period from 1 -1-2018 to 31 -3-2018
Dr. Cr.
Particula rs Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 1,80,000 By Sales 5,40,000
To Purchases 7,80,000 ByClosing Stock
(Bal.Fig.)6,39,600
To Commission
(2/100 × 7,80,000)15,600
To Carriage
Inwards24,000
To Gross Profit C/d
[5,40,000×1/3]1,80,000
11,79,600 11,79,600
Note: 50% or 1/2 on cost = 1/3 on sales.
Step 2
Calculation of Actual Loss
Particulars Rs.
Stock on the date of fire 6,39,600
Less: Salvage 1,24,080
Actual Loss 5,15,520
Step 3
Calculation of Amount of Claim
Claim = (Value of policy / Value of stock on the date of fire) × Actual
Loss
= 4,80,000 /6,39,600 × 5,15,520
=Rs. 3,86,882munotes.in
129
Step 4
Calculation of loss due to under insurance
Particulars Rs.
Actual Loss 5,15,520
Less: Amount of claim 3,86,882
Loss due to under insurance 1,28,638
Illustration No. 5
A fire broke out in the warehouse of Ankita Traders Ltd. on 30th
September 2017. The company desires to file a claim with the
insura nce company for loss of st ock. From the following information
prepare a statement showing the amount of claim. The last
account sof company were prepared on 31.12. 2016.
Stock on 31.12. 2016Rs. 1,20,000
Sundry debtors on 31.12. 2016Rs .3,20,000
Sundry debtors on 30.9. 2017Rs . 2, 40,000
Cash received from debtors Rs .11,52,000
Purchases from 1.1. 2017to 30.9. 2017Rs .10,00,000
Rate of Gross Profit on sales 25%
Solution:
Step 1
In the books of Ankita Traders Ltd.
Dr. Total Debtors A /c Cr.
Particulars Amounts
Rs.Particulars Amounts
Rs.
To Balance b/d 3,20,000 By Cash received 11,52,000
To Credit Sales
(Bal. fig.)10,72,000 ByBalance c/d 2,40,000
13,92,000 13,92,000munotes.in
130
Step 2
In the books of Ankita Traders Ltd.
Memorandum Trading Account
For the period from 1 -1-2017 to 30/09/2017
Dr. Cr.
Step 3
Statement of Claim
Particulars Rs.
Stock on the date of fire 3,16,000
Less: Salvage Nil
Amount of claim 3,16,000
Illustration No. 6
A fire occurred in the premises of M r.Dinkarrao on7thNovember
2017. From the following particulars , prepare a statement of claim
to be lodged with insurance company :-
Particulars Rs.
Stock on 01/04/2016 80,000
Stock on 31/03/2017 98,000
Purchases during 2016 -17 6,75,000
Sales during 2016 -17 8,10,000
Purchases from 01/04/2017 to 07/11/2017 5,05,400
Sales from 01/04/2017 to 07/11/2017 6,25,000
In valuing the stock for Balance Sheet on 31stMarch 2017 Rs.8,000
had been written off. Certain stock having cost Rs.14,000. Half of
these goods were sold in May 2017 for Rs.2,000. The balance is
estimated to be worth 60% of original cost. Subject to this
exception, gross profit had rem ained at uniform rate. The policy
amount was Rs.1,20,000.The stock salvaged was worth Rs.7,500.Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 1,20,000 By Sales 10,72,000
To Purchases 10,00,000 By Closing Stock
(Bal.Fig.)3,16,000
To Gro ss Profit C/d
(10,72,000 × 25%)2,68,000
13,88,000 13,88,000
munotes.in
131
Solution :
Step 1
In the books of Mr.Dinkarrao
Trading Account
For the year ended 31/03/2017
Dr. Cr.
Step 2
Gross Profit Ratio =Gross Profit / Net Sales X 100
=1,61,000/ 8,10,0 00X 100
=19.88% i.e. 20.00%
Step 3
In the books of Mr.Dinkarrao
Memorandum Trading Account
For the period ended from 01/0 4/2017to07/11/2017
Dr. Cr.Particulars Abnormal
Rs.Normal
Rs.Particulars Abnormal
Rs.Normal
Rs.
To Opening
stock- 80,000 By Sales -8,10,000
To Purchases 14,000 6,61,000 By Closing
Stock6,000 92,000
To Gross Profit
C/d- 1,61,000 By Profit and
Loss A/c8,000 -
14,000 9,02,000 14,000 9,02,000
Particulars Abnormal
Rs.Normal
Rs.Particulars Abnormal
Rs.Normal
Rs.
To Opening
stock6,000 92,000 By Sales 2,000 6,23,000
To Purchases 5,05,400 By Closing
Stock4,200 99,000
To Gross Profit
C/d
(6,23,000×20%)1,24,600 -
7,22,000 7,22,000munotes.in
132
Step 4
Loss of Stock
Particulars Rs.
Stock on the date of fire (99,000 +4,200 ) 1,03,200
Less: Salvage 7,500
Loss of Stock 95,700
Step 5
Claim
Claim = Amount ofPolicy /Stock on the date of fire × Actual Loss
=1,20,000 / 1,03,200 ×95,700
=Rs.1,11,279
Note: -Average clause is not applicable as the amount of policy
is more than the stock on the date of fi re. Claim by average
clause is more than actual loss.
Therefore, Claim = Rs. 95,700 .
Illustration No. 7
Fire occurred in the factory of X Co. Ltd on 30thJune 2018
which had t aken an insurance policy of Rs. 50,000 subject to
average clause.
From the foll owing particulars, calculate the claim to be
recovered from the Insurance Company: -
Particulars Rs
Stock on 31/12/2017 50,000
Purchases from 1/1/2018 to the date of fire 2,00,000
Sales from 1/1/2018 to the date of fire 2,40,000
It was ascertained th at the company had made an average
gross profit of 25% on sales for past five years. The value of the
goods salvaged was Rs.14,000.munotes.in
133
Solution:
Step 1
In the books of X Co. Ltd
Memorandum Trading Account
For the peri od from 01/0 1/2018 to 30/06/2018
Dr Cr
Step 2
Statement of Claim
Particulars Rs.
Stock on the date of fire 70,000
Less: Salvage 14,000
Amount of claim 56,000
Illustration No. 8
Afire occurred in the factory of Good Luck Co. Ltd on 15thApril
2018 .The value of the goods sa vedfrom fire was Rs.1,40,000.
Following information is available: -
Year Sales
Rs.Gross
Profit
Rs.
2015 -16 30,00,000 9,80,100
2016 -17 27,50,000 9,35,000
2017 -18 30,00,000 10,00,000
The stock on 31stMarch 2018was valued at
Rs.4,85,000.Purchases ,sales and wages from 1stApril 2018 to
14thApril 2018 were ascertained at Rs.3,75,000, Rs.7,95,000 and
Rs.1,50,000 respectively.
Calculate the claim to be recove red from the Insurance
CompanyParticulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 50,000 By Sales 2,40,000
To Purchases 2,00,000 By C losing Stock
(Bal. Fig.)70,000
To Gross Profit C/d
(2,40,000 × 25%)60,000
3,10,000 3,10,000
munotes.in
134
Solution:
Step 1
In the books of Good Luck Co. Ltd
Memorandum Trading Account
For the period from 01/0 4/2018 to 14/04/2018
Dr Cr
Step 2
Statement of Claim
Particulars Rs.
Stock on the date of fire 4,80,000
Less: Salvage 1,40,000
Amount of claim 3,40,000
Working Note: -
Gross Profit Ratio =Gross Profit / Net Sales X 100
Year Calculation Ratio
2015 -16 9,80,100/30,00,000 X 100 32.67
2016 -17 9,35,000/ 27,50 ,000 X 100 34.00
2017 -18 10,00,000/ 30,00,000 X 100 33.33
Average rate of gross profit for last three years is 33.33%
Illustration No. 9
Balaji Co. Ltd . havetaken a fireinsurance policy of Rs .1,60,000
covering its stock in trade .Afire occurred in the factory on 3 1st
March 2018 and stock was destroyed with the exception of
Rs.40,980 worth.
From the following particulars, calculate the claim to be
recovered from the Insurance Company: -Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 4,85,000 By Sales 7,95,000
ToPurchases 3,75,000 By Closing Stock
(Bal. Fig.)4,80,000
To Wages 1,50,000
To Gross Profit C/d
(7,95,000×33.33 %)2,65,000
12,75,000 12,75,000
munotes.in
135
Particulars Rs.
Stock on 1/1/2018 60,000
Purchases from 1/1/2018 to the date of fire 2,60,000
Sales from 1/1/2018 to the date of fire 1,80,000
Carriage paid on purchases 1,600
Commission paid to t he purchase manager on purchase :-2%
Average Gross Profit on cost: -50%
Thepolicy was subject to average clause.
Solution:
Step 1
In the books of Balaji Co. Ltd.
Memorandum Trading Account
For the period from 01/01/2018 to 31/03/2018
Dr Cr
Step 2
Statement of Claim
Particulars Rs.
Stock on the date of fire 2,06,800
Less: Salvage 40,980
Actual Loss 1,65,820
Claim = Amount ofPolicy /Stock on the date of fire× Actual Loss
=1,60,000 /2,06,800×1,65,820
=Rs.1,28,294Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 60,000 By Sales 1,80,000
To Purchases 2,60,000 By Closing Stock
(Bal.Fig.)2,06,800
ToCarriage paid on
purchases1,600
ToCommi ssion to
the purchase
manager
(2,,60,000 × 2%)5,200
To Gross Profit C/d
(1,80,000× 33.33 %)60,000
3,86,800 3,86,800 munotes.in
136
Illustration No. 10
Fire occurred on 14thOctober 2017destroyed the stock of
Salunkhe and Associates .From the following available particulars,
calculate the claim t o be recovered from the Insurance Company: -
Particulars Rs.
Stock on 1/4/2016 88,600
Stock on 1/4/2017 75,100
Purchases for the year up to 31/3/2016 2,07,700
Purchases from 1/4/2017 to the date of fire 74,700
Sales for the year up to 31/3/2016 3,05,0 00
Sales from 1/4/2017 to the date of fire 1,18,000
Rs.1,200 had been written off a particular line of goods which
had originally cost Rs.3,600 and which were sold in June 2017 for
Rs.3,500. Except as regards this transactions, the ratio of gross
profit had remained unchanged throughout. The value of the goods
salvaged was Rs. 10,232 .
Solution:
Step 1
In the books of M/s Salunkhe and Associates
Memorandum Trading Account
For the year ended 3 1stMarch 2016
Dr Cr
Step 2
Gross Profit Ratio =Gross Profit / Net Sales X 100
=85,000 / 3,05,000X 100
=27.87%Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 88,600By Sales 3,05,000
To Purchases
2,07,700
Less: Abnormal
3,6002,04,100 By Closi ng Stock
75,100
Less: Abnormal
2,40072,700
To Gross Profit C/d 85,000
3,77,700 3,77,700munotes.in
137
Step 3
In the books of M/s Salunkhe and Associates
Memorandum Trading Account
For the period from 01/04/2017 to 14/10/2017
Dr Cr
Step 4
Statement of Claim
Particulars Rs.
Stock on the date of fire 64,810
Less: Salvage 10,232
Amount of claim 54,578
Illustration No. 11
On13thDecember 2017, a firein the godown of Min alStores
damaged stock to a large extent .From the following available
particulars, prepare statement of claim to be submitt edtoInsurance
Company: -
Particulars Rs.
Balance on 31/03/2017
Stock 6,80,000
Creditors 90,000
Debtors 1,25,000
Transactions from 01/04 /2017 to 13/12/2017
Payment to creditors 3,72,000
Return outwards 12,000
Return inwards 18,000
Receipt from debtors 6,20,000
Credit purchases 3,42,000
Credit sales 6,18,000
Sales are made at a profit of 33.33% on selling price. The
policy is for Rs.5,40,000 with average clause. Salvage value of
stock damaged is Rs.20,000 .Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 72,700 By Sales 1,18,000
Less: Abnormal
3,5001,14,500
To Purchases 74,700 By Closing Stock 64,810
To Gross Profit C/d
(1,14,500 × 27.87%)31,910
1,79,310 1,79,310
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Calculate the claim to be recovered from the Insurance
Company
Solution:
Step 1
In the books of Minal Stores
Memorandum Trading Account
Fortheperiod ended from 01/04/2017 to 13/12/2017
Dr Cr
Step 2
Loss of Stock
Particulars Rs
Stock on the date of fire 6,10,000
Less: Salvage 20,000
Loss of Stock 5,90,000
Step 3
Amount of claim
Claim = Amount ofPolicy /Stock on the date of fire × Actual Loss
=5,40,000 /6,10,000 ×5,90,000
=Rs.5,22,295
Illustra tion No. 12
The business premises of M/s Patel Timber Mart Ltddestroyed by
fire on 15/07/2017. However, the books of accounts and stock
amounting to Rs.18,000 were salvaged and the following
information was available from the books: -Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 6,80,000 By Sales 6,18,000
Less: Returns
18,0006,00,000
To Purchases
3,42,000
Less:Returns
12,0003,30,000 By Closing Stock
(Bal.Fig.)6,10,000
To Gross Profit C/d
(6,00,000 ×33.33 %)2,00,000
12,10,000 12,10,000
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Year Gross
Profit
Rs.Sales
Rs.
2012-13 2,04,2508,17,000
2013-14 2,02,3506,74,500
2014-15 1,90,000 7,60,000
2015 -16 1,77,650 7,10,600
2016 -17 1,52,000 7,60,000
Additional information: -
1. Stock on 31/03/2017 Rs.92,250.
2. Purchases from 01/04/2017 to 14/07/2017 Rs .89,250.
3. Sales from 01/04/2017 to 14/07/2017 Rs.1,60,000.
4. Wages from 01/04/2017 to 14/07/2017 Rs.28,500.
5.The policy is for Rs. 80,000 subject to average clause.
You are required to prepare a statement ofclaim against the
Insurance Company with an y comments, if necessary.
Solution:
Step 1
Gross Profit Ratio =Gross Profit / Net Sales X 100
Year Calculation Ratio
2012-13 2,04,250/8,17,000X 100 25.00%
2013-14 2,02,350/6,74,500X 100 30.00%
2014-15 1,90,000 /7,60,000 X 100 25.00%
2015 -16 1,77,650 /7,10,600 X 100 25.00 %
2016 -17 1,52,000 /7,60,000 X 100 20.00 %
Average rate of gross profit =25+30+25+25+20 / 5
=125 / 5
=25.00 %munotes.in
140
Step 2
In the books of M/s Patel Timber Mart Ltd
Memorandum Trading Account
For the period ended from 01/04/2017 to 13/ 07/2017
Dr Cr
Step 3
Loss of Stock
Particulars Rs.
Stock on the date of fire 90,000
Less: Salvage 18,000
Loss of Stock 72,000
Step 4
Claim
Claim =Amount ofPolicy /Stock on the date of fire × Actual Loss
=80,000 /90,000×72,000
=Rs.64,000
Illustration No. 13
Ajinkya Ltd suffered los s of stock due to fire on 31stMay 2018.
From the following information, prepare a statement showing the
amount of claim to be lodged: -
Particulars Rs.
Stock on 01/01/2017 38,400
Purchases during 2017 1,60,000
Sales during 2017 2,02,600
Stock on 31/1 2/2017 31,800
Purchases from 01/01/201 8to 31/ 05/2018 54,000
Sales from 01/01/2018 to 31/05/2018 61,400
An item of stock purchased in 2016 at a cost of Rs.10,000 was
valued at Rs.6,000 on 31stDecember 2016.Half of the stock was
sold in 2017 for Rs.2, 600. Remaining stock was valued at Rs.2,400
on 31stDecember 2017.1/4thof the original stock was sold in March,Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 92,250By Sales 1,60,000
To Purchases 89,250By Closing Stock
(Bal.Fig.)90,000
To Wages 28,500
To Gross Profit C/d
(1,60,000 ×25.00 %)40,000
2,50,000 2,50,000
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2018 for Rs.1,400.The remaining stock was considered to be worth
60% of the origi nal cost. Salvage was Rs.12,000. The amount of the
policy was R s.30,000.There was an average clause in the policy.
Solution :
Step 1
In the books of Ajinkya Ltd
Trading Account
For the year ended 31/12/2017
Dr Cr
Step 2
Gross Profit Ratio =Gross Profit / Net Sales X 100
=37,000 / 2,00,000 X 100
=18.50%
Step3
In the books of Ajinkya Ltd
Memorandum Trading Account
For the period ended from 01/04/2017 to 31/05/2017
Dr Cr
Particulars Amounts
Rs.Particulars Amoun ts
Rs.
To Opening stock 29,400 By Sales 61,400
Less: Abnormal
1,40060,000
To Purchases 54,000By Closing Stock
(Bal. Fig.)34,500
To Gross Profit C/d
(60,000 ×18.50 %)11,100
94,500 94,500Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock
38,400
Less: Abnormal
6,00032,400By Sales 2,02,600
Less: Abnormal 2,6002,00,000
To Purchases 1,60,000By Closing Stock
31,800
Less: Abnormal 2,40029,400
To Gross Profit C/d 37,000
2,29,400 2,29,400
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Step 4
Loss of Stock
Particulars Rs
Stock on the date of fire (34,500 + 1,500) 36,000
Less: Salvage 12,000
Loss of Stock 24,000
Step 5
Claim
Claim =Amount ofPolicy /Stock on the date of fire × Actual Loss
=30,000 /36,000 ×20,000
=Rs.20,000
Working Note: -
Particulars Abnormal
Rs.Valued
Rs.
10,000 6,000
½ Sold 5,000 3,000
5,000 3,000
¼ Sold 2,500 1,500
Balance 2,500 1,500
Illustration No. 14
A fire occurred in the premises of M r.Rajendra on 15thOctober
2017.From the following particulars , prepare a statement of claim
to be lodged with insurance company :-
Particulars Rs.
Stock on 31/03/2016 1,98,000
Stock on 31/03/2017 2,42,000
Purchases during 2016 -17 6,40,000
Sales during 2016 -17 8,00,000
Purchases from 01/04/2017 to 15/10/2017 8,00,000
Sales from 01/04/2017 to 15/10/2017 7,58,000
The stock on31stMarch 2016 was valued at 90% of cost price
and on 31stMarch 2017 was valued at 10% above cost. The stock
salvaged was of the value of Rs.35,600 .The claim was subject to
average clause.munotes.in
143
Solution:
Step 1
In the books of Mr.Rajendra
Trading Account
For the year ended 31/03/2017
Dr Cr
Step 2
Gross Profit Ratio =Gross Profit / Net Sales ×100
=1,60,000 /8,00,000 ×100
=20.00%
Step 3
In the books of Mr.Rajendra
Memorandum Trading Account
For the period ended from 01/0 4/2017to15/10/2017
Dr Cr
Particulars Amounts
RsParticulars Amounts
Rs
To Opening stock 2,20,000 By Sales 7,58,000
To Purchases 6,00,000 By Closing Stock
(Bal. Fig.)2,13,600
To Gross Profit C/d
(7,58,000×20.00%)1,51,600
9,71,600 9,71,60 0
Step 4
Loss of Stock
Particulars Rs
Stock on the date of fire 2,13,600
Less: Salvage 35,600
Loss of Stock 1,78,000Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock
1,98,000
Add:-Undervalued
22,0002,20,000 By Sales 8,00,000
To Purchases 6,40,000 By Closing Stock
2,42,000
Less: Overvalued
22,0002,20,000
To Gross Profit C/d 1,60,000
10,20 ,000 10,20 ,000
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Step 5
Claim
Claim = Amount ofPolicy /Stock on the date of fire × Actual Loss
=2,00,000 / 2,13,600 ×1,78,000
=Rs.1,66,667
Illustration No. 15
On7thMay 2018,the premises and stock ofafirmdestroyed by
fire,however, books of accounts being saved. In order to make a
claim on their fire polic y,they ask your advice and you are able to
obtain the fo llowing information. The stock on hand has always
been valued at 5% below cost.
Particulars 2015
Rs.2016
Rs.2017
Rs.2018
Rs.
Opening Stock 22,800 30,400 36,100 39,900
Wages 28,400 31,200 34,200 12,000
Purchases 91,000 1,10,000 1,20,000 41,000
Sales 1,40,000 1,70,000 1,86,000 75,000
Closing Stock 30,400 36,100 39,900 -
Prepare a statement of submission totheinsurance company
in support of your claim for loss of stock .
Solution :
Step 1
In the books of the firm
Trading Account
For the year ended 31/03/2017
Dr Cr
Particulars 2015
Rs.2016
Rs.2017
Rs.Particulars 2015
Rs.2016
Rs.2017
Rs.
To Opening
Stock24,000 32,000 38,000 By Sales 1,40,000 1,70,000 1,86,000
To Purchases 91,000 1,10,000 1,20,000 By Closing
Stock32,000 38,000 42,000
To Wages 28,400 31,200 34,200
To Gross Profit
C/d28,600 34,800 35,800
1,72,00
02,08,000 2,28,000 1,72,000 2,08,000 2,28,000munotes.in
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Step 2
Gross Profit Ratio =Gross Profit / Net Sales ×100
Year Calculation Ratio
2015 28,600 /1,40,000 ×100 20.43%
2016 34,800 /1,70,000 ×100 20.47%
2017 35,800 /1,86,000 ×100 19.25%
Average rate of gross profit =20.43 +20.47 +19.25/ 5
=60.15/3
=20.05%i.e.20.00%
Step 3
In the books of the firm
Memorandum Trading Account
For the period ended from 01/04/2018to31/05/2018
Step 4
Statement of Claim
Particulars Rs
Stock on the date of fire 35,000
Less: Salvage Nil
Amount of claim 35,000Particulars Amounts
Rs.Particulars Amounts
Rs.
To Opening stock 42,000 By Sales 75,000
To Purchases 41,000 By Closing Stock
(Bal. Fig.)35,000
To Wages 12,000
To Gross Profit C/d
(75,000× 20%)15,000 -
1,10,000 1,10,000munotes.in
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8.2 EXERCISES
Illustration 1:
A fire occurre d in the business premises of M/S Black on
15thOctober ,20 17. From the following particulars ascertain the loss
of stock and prepare a claim for insurance.
Particulars Rs.
Stock on 1 -1-2016
Purchases from 1 -1-2016to 31 -12-2016
Sales from 1 -1-2007 to 31-12-2016
Stock on 31 -12-2016
Purchases from 1 -1-2017to 14 -10-2017
Sales from 1 -1-2017to 14 -10-201730,600
1,22,000
1,80,000
27,000
1,47,000
1,50,000
The stocks were always valued at 90% of cost . The stock
saved was worth Rs.18,000. The amount of the p olicy was
Rs.63,000. There was an average clause in the policy.
(Amount of claim =Rs. 47,250 )
(Ans.: G/P Rs.25,000, Stock on the date of Fire Rs.17,600, Amount of Claim
Rs.14,000)
Illustration 2:
On 21stJune, 2017 the premises of X Ltd. w ere destroyed by
fire but sufficient records were saved from which the following
particulars were ascertained.
Rs.
Stock at cost on 1 -1-2016 73,500
Stock at cost on 31 -12-2016 79,600
Purchases during the year 2016 3,98,000
Sales during t he year 2016 4,87,000
Purchases from 1 -1-2017 to 21 -6-2017 1,62,000
Sales from 1 -1-2017 to 21 -6-2017 2,31,200
In valuing the stock for the Balance Sheet at 31stDecember
2016 Rs.2,300 had been written off from certain stock which was a
poor selling lin e, having cost Rs.6,900.A portion of these goods
was sold in April 2017 at a loss of Rs.250 on the original cost of
Rs.3,450.The remainder of this stock now estimated to be worth the
original cost. Subject to above exception, gross profit had remained
at auniform rate throughout.
The stock salvaged was Rs.5,800.
Show the amount of claim.
[Ans : Insurance Claim –Rs.52,250]munotes.in
147
Illustration 3:
The premises of M/s. Thin and Company were destroyed by
fire on 1stSeptember 2014 and some stock was found badly
damaged. The accounts of the firm are closed on 31stDecember
each year. On 31stDecember 2013, stock was valued at cost
Rs.26,544 against Rs.19,228 as at 31stDecember 2012.
Purchases and sales were as follow:
Particulars Rs.
Purchases for the year 2013 90,516
Sales for the year 2013 1, 04,000
Purchases from 01/01/2014 to 01/09/2014 69,654
Sales from 01/01/2014 to 01/09/2014 98,340
In addition to the above following additional information is collected:
i)Sometime in May 2014 goods costing Rs.10,000 were
distributed a s part of advertisement campaign in support
whereof no entry appears to have been passed in the books.
ii)During 2014, cash sales of Rs.1,190 were misappropriated and
these were not recorded in the books.
Ascertain the estimated value of Stock on the dat e of the
assuming that the rate of gross profit has been constant.
[Ans: Amount of Claim Rs.6,574 ]
Illustration 4:
The premises of M/s Weakend were destroyed by fire on
30-06-2018. Following figures were collected from available
sources. Prepare statement of claim, showing the amount of claim.
The firm closes its books on 31stDecember every year.
Details 2015
Rs.2016
Rs.2017
Rs.30/06/ 18
Rs.
Opening Stock
Sales
Purchases
Freight Outward
Freight Inward
Return Inward
Closing Stock20,000
2,22,000
1,60,000
6,000
5,000
22,000
22,00022,000
2,02,500
1,45,000
7,000
3,000
4,000
11,80011,800
1,93,500
1,70,000
3,000
5,000
6,000
34,02034,020
28,000
35,000
2,500
1,000
2,000
?munotes.in
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Further Information:
1)In 2015, while valuing cl osing stock, a slow moving item costing
Rs.5,000 was valued at Rs.4,000 and this was sold in 2016, for
Rs.4,500.
2)In 2016, while valuing closing stock, an item costing Rs.6,000
was wrongly valued at Rs.7,000 and was sold in 2017 for
Rs.5,500.
3)In 2017 while valuing closing stock, goods costing Rs.12,000
were valued at Rs.10,000. 50% of these goods were sold
before 30 -06-2018 for Rs.6,000.
4)The goods salvaged were Rs.10,000.
[Ans : Insurance Claim –Rs.40,020]
Illustration 5:
A fire occurred in the godown of X Ltd. on 9thMarch, 2018,
destroying the entire Stock. The books and records were salvaged
from salvaged from which the following particulars were
ascertained :
Rs.
Sales for the year, 2017 10,01,000
Sales for the period 1 -1-2018 to 8 -3-2018 3,00,000
Purchases for the year, 2017 8,00,000
Purchases for the period 1 -1-2018 to 8 -3-2018 1,25,000
Stock on 1 -1-2017 3,31,100
Stock on 31 -12-2017 3,85,000
The company has been following the practice of valu ing the
Stock of goods at actual cost plus 10%. Included in the Stock on
1-1-2017 were some shop -soiled goods which originally cost
Rs.2,000, but were valued at Rs.1,100. These goods were sold
during the year 2017 for Rs.1000. Subject to these, the rate of
Gross Profit on the basis of valuation of Stock was uniform.
You are required to ascertain the value of the Stock destroyed.
[Ans : Rs.2,50,000]
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