INSTITUTE OF COST ACCOUNTANTS OF INDIA
CMA INTERMEDIATE: PAPER 5 – FINANCIAL ACCOUNTING
BRANCH ACCOUNTING
A. State whether each of the following statements is True or False:
1.      Under debtors system, Branch Account is a nominal account.                True
2.      Under debtors system Branch Account discloses profit or loss of the branch.  True
3.      Under debtors system, Branch Account is credited with opening balances of branch assets.  False
4.      Under debtors system, no entry is required in Branch Account for branch expenses paid by the branch out of petty cash.  True
5.      In Branch Account, no entry is made for credit sales, bad debts, discount allowed and return by customers.      True
6.      Under Debtors System, Debtors at close are shown on the Debit Side of the Branch Account after adjusting for Bad Debts, discount allowed etc.  False

7.      Under Debtors System, Depreciation is not shown in the Branch Account.  True
8.      Reserve for Bad Debts and Reserve for Discount on Debtors will be recorded separately in the Branch account under the Debtors system.  False
9.      Normal and abnormal loss are shown in branch account.                      False
10.  In Branch Accounting system, the Branch prepares the periodic returns based on which the accounting records are maintained at the Head office.                           True
11.  Branch trading and profit & loss account is a memorandum account in case of dependent branch.  True
12.  Branch trading and profit & loss account is prepared at cost price.                   True
13.  Branch account is debited with opening balance of branch assets and credited with opening balance of liabilities at branch.                True
14.  Branch account is a personal account under final account system.  True
15.  Goods in transit will be shown either on the both sides of the branch account or will be ignored totally from the branch account.                   True
16.  Sales Returns will not appear directly in the Branch Account under the Debtors System.  True
17.  When the goods are returned by Branch, goods sent to Branch account will be debited in the books of Head Office.          True
18.  Branch Account under Debtors System is a Real Account.  False
19.  When branch turnover is large, stock and debtors system also known as analytical method is followed.                  True
20.  Under stock and debtors system branch profit is ascertained by opening Branch Adjustment Account.  True
21.  Under the stock and debtors system Branch Stock Account is a Nominal Account.  False
22.  Branch stock account is always prepared at cost price.  False
23.  Branch stock shows gross profit or loss if goods are sent to branch at cost price.         True
24.  Under stock and debtors system no entry is required for normal loss of stock.  False
25.  In the case of foreign branches current assets and current liabilities are converted at the rate prevailing on the date of trial balance.  True
26.  In the case of branch keeping full system of accounting, (when branch fixed assets account is maintained in head office account) depreciation for the year is debited to profit and loss account and credited to head office account in branch books.  True
27.  The balances shown by head office account in branch books and branch account in head office books are always equal although the natures of balances differ.  False
28.  Under stock and debtors system, branch adjustment account is prepared to find gross profit. True
29.  Only loading in stock and goods is shown in branch adjustment account.                      True
30.  Loading on stock is transferred to stock reserve/suspense account.       True
31.  Actual petty expenses incurred by the Branch Account under the Debtors system will not be recorded in the Branch Account.  True
32.  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.  True
33.  Under debtors system, losses due to pilferage, wastage and other losses of stock due to normal and abnormal reasons are completely ignored.  True
B. Fill in the blank with appropriate word or words:
1.      The main establishment located at the main place of activity is called the Head Office and the subsidiary establishments located at various places are called Branch.
2.      Goods supplied to Dependent Branches by the Head Office may be either at Cost or at Invoice price.
3.      The One Account System or Debtors System is generally adopted when the branch is fairly small in size.
4.      Stock and debtors system or Analytical method is generally adopted when the branch is Large.
5.      Branch Account is Nominal in nature and is prepared in the Head Office Books
6.      Under Debtors System, credit sales, bad debts, return inward, discounts allowed and depreciation are not taken in the Branch Account.
7.      Under Debtors System fixed assets is shown on the credit side only after deducting the amount of depreciation, if any.
8.      Under the Debtors System, the Head Office will record all the transactions relating to the branch in the Branch Account through Debtors and Creditors relationship between the Branch and the Head Office.
9.      Under the Debtors System, the Reserve for Doubtful Debts /Reserve for Discount on Debtors should be deducted from closing Debtors and only the good closing debtors will be recorded in the Branch Account.
10.  Actual petty expenses incurred by the branch will will not be recorded in the Branch Account under the Debtors System.

C. Choose the correct alternative:
1. Which one of the following is not true about a dependent branch?
a) These branch sell only those goods which are received from the head office.
b) All expenses of the branch are paid by the head office.
c) Petty expenses are paid by the branch and petty cash account is prepared at the branch either as simple petty cash or on imprest system.
d) Such departments maintain their own books of account.
2. Which one of the following is true about branch account under debtors system?
a) It is real in nature.
b) Assets and liabilities in the beginning or at the end are not shown in such account.
c) It is prepared to find branch profit or loss for a particular period.
d) All expenses paid by branch and head office is shown in branch account.
3. Which one the following is not true about independent branch?
a) These branches can purchase goods from open market.
b) They maintain complete set of double entry system.
c) They also maintain head office account.
d) They do not charge depreciation on fixed assets.
4. When goods are invoiced to Branch at Invoice price, the value of goods is adjusted by
a) Debiting Goods sent to branch account
b) Debiting Branch Adjustment Account
c) Debiting Stock reserve account
d) Debiting Branch Account
5. Goods are sent to branch at cost plus 20%. The loading on the invoice price will be
a) 16.67%
b) 28%
c) 33.33%
d) 25%
6. Which of the following statements is true with regard to accounting for branches?
a) Under debtors system, Branch account is a real account.
b) Under stock and debtors system, Branch adjustment account discloses the gross profit made by the branch.
c) Branch stock account is always prepared at cost price.
d) Under debtors system, Branch account is debited with losses like bad debts, discounts allowed and depreciation.
e) Under stock and debtors system, Branch stock account is a nominal account.
7. The fixed assets accounts of are maintained by the head office, then
a) No entry is passed by the branch for depreciation on fixed assets
b) Branch account is debited and fixed assets is credited in the books of head office for depreciation
c) Depreciation account is debited and head office account is credited in the books of branch
8. When Branch 'A' sends goods to Branch 'B', in the books of Branch 'A', debit is given to
a) Head office A/c
b) Branch 'B'A/c
c) Both HO A/c and Branch A/c
d) No entry.
9. In case of a dependent branch 'Branch fixed Assets A/c’s are maintained by:
a) Branch
b) Head office
c) Department
d) None of the above.

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