Term: 1^st Term

Week: 11

Class: Senior Secondary School 3

Age: 17 years

Duration: 40 minutes of 2 periods each

Date:

Subject: Financial accounting

Topic:- Branch account I

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

Differentiate between departmental and branch account
Mention and explain the types of branch
State the importance of branch account

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on departmental account	Students pay attention
STEP 2 EXPLANATION	She differentiates between departments and branch. She further mentions and explains the types of branch	Students pay attention and participates
STEP 3 DEMONSTRATION	She states the importance of branch	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

NOTE

BRANCH ACCOUNT

A branch of an organization whether business or non-business can be defined as a part of the organization operating with some degree of independence. For example, a business concern may have its head office situated in one city with several branches in different parts of the country. Thus, a branch is created where a section of a business is segregated physically from the main section. In other words, if the location of activities is separated from the main place or operation, a relationship is created between the branches and the head office.

The method of accounting for branch essentially depends on the dealings and transaction between the head office and the branches. A branch may be a small retail shop managed by a single person, selling only goods sent by the head office, or it may be a foreign branch located thousands of kilometers away from the head office, purchasing the required materials, manufacturing and distributing the products in its area, with its activities controlled only in a very small degree by the head office.

Divisions of Branches

For accounting purposes, branches may be divided into the following three classes:

Branches for which the whole of the accounting records are kept by the head office
Branches which maintain separate accounting records
Foreign branches

Methods of Accounting for Branches

Where the Head Office Keeps the Accounts

This method is used basically when the branches are regarded as sales department, receiving all goods they deal in from the head office which the branch manager must account for. In this methods, the head office does all the buying and the branch only sells. The branches receive goods from the head office at selling price and the branches must as a necessity produce the cash or stock to cover the value of goods received. Managers at the branches are put on check through preparation and forwarding of reports giving the details of goods received and returned to the head office, cash sales, credit sales, cash received from debtors, stock, expenses and debtors at regular intervals.

Pricing Method

There are three different pricing methods which a head office can use to charge goods to the branches as follows:

Cost price
Cost plus a percentage
Selling price

Cost Price Method

The cost price method can be used where goods are perishable in nature or where the selling prices are difficult to determine due to fluctuations. The method charges out goods sent to branch at cost price and the opening and closing stocks also taken at cost price.

This method has the major disadvantage of lacking the check imposed on trading activities of the branch by the selling price method.

Cost Plus a Percentage Pricing Method

This is regarded as the most effective method of charging goods to the branch. Goods are sent to branches at cost plus a fixed percentage. The head office will keep accounts which will disclose the gross profit or loss of the branch, in a situation where cost plus a percentage at which the goods are charged is equivalent to selling price, the head office will also have stock control. Hence the total goods received by branch from head office must be equal to sales plus returns to head office plus the branch closing stock.

Under cost plus method, the head office keeps:

Branch stock accounts.
Goods sent to branch account.
Branch stock adjustment account.

Basically, there are two methods used in recording and presenting accounting entries under the cost plus percentage method. These are as follows:

Branch stock adjustment method.
Memorandum or double column method.

Branch stock adjustment method

Using this method, the following accounts are prepared.

Branch stock account: This account records goods sent to branch by head office at the involved price.
Branch stock adjustment account: This account is used to record the amount of loading added to the cost of the goods sent to the branch. The account is used to ascertain the actual gross profit of the branch.
Goods sent to branch account: This account is recorded at the cost price of the good sent.
Debtors account: This account records transactions of the debtors.

Accounting Entries

Transaction	Debit	Credit
When goods are sent to the branches	Branch stock account at the full amount at which the goods are invoiced.	Goods sent to branch account with the cost price of the goods. Branch stock adjustment account with the percentage of profit added to cost of the goods i.e. profit loading.
When goods are returned to head office by the branch	Goods sent to branch account at cost price of goods. Branch stock adjustment account with the percentage of profit added to the cost of goods (i.e. profit loading).	Branch stock account at the amount at which the good are invoiced and sent to branches.
When sales are made	Cash account if it is cash sales. Debtors account if it is credit sales.	Branch stock account whether it is cash or credit sales.
With the opening stock	Brach stock account with the invoiced price of goods.	Branch stock adjustment account with the percentage of profit added to the goods.
With the closing stock	Branch stock adjustment account with the percentage of profit added to the goods	Branch stock account with the invoiced price of the goods.
When goods are transfer red by a branch to another branch	Goods sent to branch account with the cost price of such goods. Branch stock adjustment account with the percentage of profit added to such goods.	Branch stock account with the involved price.
Where goods are still in transit	Branch stock adjustment account with the percentage of profit on such goods.	Branch stock account at the invoiced price of such goods.
When goods are lost in transit	Branch stock adjustment account with the percentage of profit added to cost of such goods. Goods lost in transit account with the cost price of such goods.	Branch stock account at the invoiced price of such goods.
When there is a reduction in selling price or allowance is give off the selling price	Branch stock adjustment account with the total allowance.	Branch stock account with the total allowance.
When goods are returned by the customers directly to the	Branch stock adjustment account with the percentage added to the cost of such goods. Goods sent to branch account with the cost price of such goods.	Debtor account with the invoice price of such goods.
When goods are stolen or there is deficiency of goods	Branch stock adjustment account with the percentage of profit added to the cost of such goods. Goods stolen account or deficiency account with the cost price of such goods.	Branch stock account with the invoiced price of the goods.
When cash from cash sales of goods are stolen	Defalcation account with the total amount stolen and later transfer to profit and loss.	Branch stock account with the total amount.

At the end of the period, the goods sent to branch account will be closed by transferring the balance to the head office purchases account. This transfer relieves the head office trading account to charge for these goods, since they have been fully accounted in the branch stock account and the branch stock adjustment account.

The balance on the adjustment account will be transferred to profit and loss account.

Selling Price Pricing Method

Sometimes goods are sent to the branches by the head office at selling prices, i.e. the goods are sent to branches at actual prices at which they are to be sold by the branches.

Most goods which are proprietary goods are charged and sent to branches using this method.

The aim of this method is to provide adequate check on the branch managers and staff to ensure that all goods sent to them are fully accounted for.

The head office would maintain the following accounts in respect of the branch:

Branch stock account
Goods sent to branch account
Total debtors account
Expenses account

	DR	CR
When goods are sent to the branch	Branch stock account with total selling price of all goods sent to the branch	Goods sent to branch account with total selling price of all goods sent
When goods are returned by branch to head office	Goods sent to branch Account with the amount	Branch stock account with the amount
Where goods are transferred between branches	Branch stock account of the transferee at the selling price	Branch stock account of the transferor branch at the selling price
Cash sales	Cash	Branch stock account
Credit sales	Total debtor account	Branch stock account
Cash receipt from debtors	Cash book	Total debtor account

At balancing time, the balance on the branch stock account represents the closing stock of the branch at selling prices.

Accounting for Branches Which Keep Separate

Account Records

At times, it is considered expedient for a branch to keep complete financial records at the branch. This may be due to:

The branch being located far from the headquarters
The nature of activities of the branch
Where the size of the branch makes it economical for the account to be so prepared

To record the transactions, efforts are made to show the connection between the branch and the head office through the following accounts:

Head office current account or head office account
Branch current account or branch account

At any time, the branch account in the head office will show the indebtedness of the branch to the head office. The relationship between the head office and branch is that of debtor and creditor. This is evidenced by debit balance of the branch account in the head office books, and also a corresponding credit balance of the head office account in the branch books.

The current accounts are used for all transactions that are concerned with supplying of resources of the branch as well as transactions involving withdrawals of resources from the branch.

It is noteworthy to emphasise that whatever profit is earned by the branch does not belong to the branch, it should therefore be credited to the head office current account and any loss debited to the account ultimately, the head office will debit the branch current account and credit the profit and loss account.

Foreign Branches

Foreign branches occur whenever a business has parts of its trading and manufacturing activities carried out by one or more of its branches located in other countries. In such a situation separate accounting records are maintained at the branch. The branch will thus maintain separate accounting records as described earlier.

The following are the features of the foreign branch:

The branch account in the head office books is ruled with two columns; one column maintained in foreign currency and the other in local currency (i.e. Naira).
The entries in the foreign currency are memoranda in nature and necessary for reconciliation with head office account.
The branch will forward copy of its trading and profit and loss account, its balance sheet and detail copy of head office account to the head office.
The branch assets, liabilities and revenue items will be converted at the applicable rate between the country of the branch and the head office.

EVALUATION: 1. Differentiate between branch and department

Mention and explain the types of branch
State the importance of branch

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively

Lesson Notes By Weeks and Term - Senior Secondary 3