Accounting for Branches Including Foreign Branches: Notes (Part- 1) | Accounting for CA Intermediate (Old Scheme) PDF Download

 Page 1


 
 
 
 
LEARNING OUTCOMES 
  
 
 
ACCOUNTING FOR BRANCHES 
INCLUDING FOREIGN 
BRANCHES 
 
 
 
After studying this chapter, you will be able to– 
? Understand concept of branches and their classification from 
accounting point of view.  
? Distinguish between the accounting treatment of dependent 
branches and independent branches. 
? Learn various methods of charging goods to branches. 
? Solve the problems, when goods are sent to branch at wholesale 
price. 
? Prepare the reconciliation statement of branch and head office 
transactions after finding the reasons for their disagreement. 
? Incorporate branch balances in the head office books. 
? Differentiate between integral and non-integral foreign branches. 
? Learn the techniques of foreign currency translation in case of 
foreign branches. 
 
 
13 
CHAPTER 
Page 2


 
 
 
 
LEARNING OUTCOMES 
  
 
 
ACCOUNTING FOR BRANCHES 
INCLUDING FOREIGN 
BRANCHES 
 
 
 
After studying this chapter, you will be able to– 
? Understand concept of branches and their classification from 
accounting point of view.  
? Distinguish between the accounting treatment of dependent 
branches and independent branches. 
? Learn various methods of charging goods to branches. 
? Solve the problems, when goods are sent to branch at wholesale 
price. 
? Prepare the reconciliation statement of branch and head office 
transactions after finding the reasons for their disagreement. 
? Incorporate branch balances in the head office books. 
? Differentiate between integral and non-integral foreign branches. 
? Learn the techniques of foreign currency translation in case of 
foreign branches. 
 
 
13 
CHAPTER 
 
 
13.2 
 
ACCOUNTING 
  
 
 
 
 1. INTRODUCTION 
A branch can be described as any establishment carrying on either the same or 
substantially the same activity as that carried on by head office of the company. It 
must also be noted that the concept of a branch means existence of a head office; 
for there can be no branch without a head office - the principal place of business. 
Branch offices are of a great utility in the sense that they allow business to be 
expanded closer to the clients and hence they facilitate face to face interaction with 
customers.  
Classification of Branches
Inland Branches
Dependent Branches for which 
whole accounting records are 
kept at Head Office 
Independent Branches which 
maintain independent 
accounting records
Foreign Branches
Methods of maintaining accounts of Dependent Branches
Goods invoiced at cost or 
selling price
Debtors 
Method
Stock and 
Debtors 
Method
Trading and profit 
and loss account 
method (Final 
Accounts method)
Goods invoiced at 
wholesale price
Whole sale branches 
method 
 
Page 3


 
 
 
 
LEARNING OUTCOMES 
  
 
 
ACCOUNTING FOR BRANCHES 
INCLUDING FOREIGN 
BRANCHES 
 
 
 
After studying this chapter, you will be able to– 
? Understand concept of branches and their classification from 
accounting point of view.  
? Distinguish between the accounting treatment of dependent 
branches and independent branches. 
? Learn various methods of charging goods to branches. 
? Solve the problems, when goods are sent to branch at wholesale 
price. 
? Prepare the reconciliation statement of branch and head office 
transactions after finding the reasons for their disagreement. 
? Incorporate branch balances in the head office books. 
? Differentiate between integral and non-integral foreign branches. 
? Learn the techniques of foreign currency translation in case of 
foreign branches. 
 
 
13 
CHAPTER 
 
 
13.2 
 
ACCOUNTING 
  
 
 
 
 1. INTRODUCTION 
A branch can be described as any establishment carrying on either the same or 
substantially the same activity as that carried on by head office of the company. It 
must also be noted that the concept of a branch means existence of a head office; 
for there can be no branch without a head office - the principal place of business. 
Branch offices are of a great utility in the sense that they allow business to be 
expanded closer to the clients and hence they facilitate face to face interaction with 
customers.  
Classification of Branches
Inland Branches
Dependent Branches for which 
whole accounting records are 
kept at Head Office 
Independent Branches which 
maintain independent 
accounting records
Foreign Branches
Methods of maintaining accounts of Dependent Branches
Goods invoiced at cost or 
selling price
Debtors 
Method
Stock and 
Debtors 
Method
Trading and profit 
and loss account 
method (Final 
Accounts method)
Goods invoiced at 
wholesale price
Whole sale branches 
method 
 
 
 
13.3 
 
ACCOUNTING FOR BRANCHES INCLUDING FOREIGN BRANCHES 
From the accounting point of view, branches may be classified as follows: 
• Inland Branches which can be further classified as: 
(a) Independent Branches which maintain independent accounting records 
(b) Dependent Branches for which whole accounting records are kept at 
Head Office 
• Foreign Branches 
Difference between branch and department 
Branch: Establishment at location different from Head Office to carry either same 
or substantially same activity as carried on by Head Office 
Department: Division of a large organization dealing with a various kind of activity 
at the same location. 
Let’s take an example of a CA Firm working in the field of Auditing, Taxation and 
Finance having office at Mumbai, Chennai and Delhi practicing such fields. The CA 
firm has various branches in different cities, i.e., Mumbai, Chennai and Delhi, also it 
has various department of Auditing, Taxation and Finance at one particular branch 
(location). 
 2. DISTINCTION BETWEEN BRANCH ACCOUNTS 
AND DEPARTMENTAL ACCOUNTS 
Basis of distinction Branch Accounts Departmental 
Accounts 
1. Maintenance of 
accounts 
Branch accounts may be 
maintained either at 
branch or at head office. 
Departmental accounts 
are maintained at one 
place only. 
2.  Apportionment of 
common expenses 
As expenses in respect of 
each branch can be 
identified, so the 
apportionment problem 
never arises. 
Common expenses are 
distributed among the 
departments concerned 
on some equitable basis 
considered suitable in 
the case. 
3.  Reconciliation Reconciliation of head 
office and branch 
accounts is necessary in 
Such problem never 
arises. 
Page 4


 
 
 
 
LEARNING OUTCOMES 
  
 
 
ACCOUNTING FOR BRANCHES 
INCLUDING FOREIGN 
BRANCHES 
 
 
 
After studying this chapter, you will be able to– 
? Understand concept of branches and their classification from 
accounting point of view.  
? Distinguish between the accounting treatment of dependent 
branches and independent branches. 
? Learn various methods of charging goods to branches. 
? Solve the problems, when goods are sent to branch at wholesale 
price. 
? Prepare the reconciliation statement of branch and head office 
transactions after finding the reasons for their disagreement. 
? Incorporate branch balances in the head office books. 
? Differentiate between integral and non-integral foreign branches. 
? Learn the techniques of foreign currency translation in case of 
foreign branches. 
 
 
13 
CHAPTER 
 
 
13.2 
 
ACCOUNTING 
  
 
 
 
 1. INTRODUCTION 
A branch can be described as any establishment carrying on either the same or 
substantially the same activity as that carried on by head office of the company. It 
must also be noted that the concept of a branch means existence of a head office; 
for there can be no branch without a head office - the principal place of business. 
Branch offices are of a great utility in the sense that they allow business to be 
expanded closer to the clients and hence they facilitate face to face interaction with 
customers.  
Classification of Branches
Inland Branches
Dependent Branches for which 
whole accounting records are 
kept at Head Office 
Independent Branches which 
maintain independent 
accounting records
Foreign Branches
Methods of maintaining accounts of Dependent Branches
Goods invoiced at cost or 
selling price
Debtors 
Method
Stock and 
Debtors 
Method
Trading and profit 
and loss account 
method (Final 
Accounts method)
Goods invoiced at 
wholesale price
Whole sale branches 
method 
 
 
 
13.3 
 
ACCOUNTING FOR BRANCHES INCLUDING FOREIGN BRANCHES 
From the accounting point of view, branches may be classified as follows: 
• Inland Branches which can be further classified as: 
(a) Independent Branches which maintain independent accounting records 
(b) Dependent Branches for which whole accounting records are kept at 
Head Office 
• Foreign Branches 
Difference between branch and department 
Branch: Establishment at location different from Head Office to carry either same 
or substantially same activity as carried on by Head Office 
Department: Division of a large organization dealing with a various kind of activity 
at the same location. 
Let’s take an example of a CA Firm working in the field of Auditing, Taxation and 
Finance having office at Mumbai, Chennai and Delhi practicing such fields. The CA 
firm has various branches in different cities, i.e., Mumbai, Chennai and Delhi, also it 
has various department of Auditing, Taxation and Finance at one particular branch 
(location). 
 2. DISTINCTION BETWEEN BRANCH ACCOUNTS 
AND DEPARTMENTAL ACCOUNTS 
Basis of distinction Branch Accounts Departmental 
Accounts 
1. Maintenance of 
accounts 
Branch accounts may be 
maintained either at 
branch or at head office. 
Departmental accounts 
are maintained at one 
place only. 
2.  Apportionment of 
common expenses 
As expenses in respect of 
each branch can be 
identified, so the 
apportionment problem 
never arises. 
Common expenses are 
distributed among the 
departments concerned 
on some equitable basis 
considered suitable in 
the case. 
3.  Reconciliation Reconciliation of head 
office and branch 
accounts is necessary in 
Such problem never 
arises. 
 
 
13.4 
 
ACCOUNTING 
case of Branches 
maintaining independent 
accounting records at the 
end of the accounting 
year. 
4.  Conversion of 
foreign currency 
figures 
At the time of finalization 
of accounts, conversion 
of figures of foreign 
branch is necessary.  
Such problem never 
arises. 
 3. DEPENDENT BRANCHES  
When the business policies and the administration of a branch are wholly controlled 
by the head office and its accounts also are maintained by it, the branch is 
described as Dependent branch. Branch accounts, in such a case, are maintained at 
the head office out of reports and returns received from the branch. Some of the 
significant types of branches that are operated in this manner are described below: 
(a)  A branch set up merely for booking orders that are executed by the head 
office. Such a branch only transmits orders to the head office; 
(b)  A branch established at a commercial center for the sale of goods supplied 
by the head office, and under its direction all collections are made by the 
H.O.; and  
(c) A branch for the retail sale of goods, supplied by the head office. 
Accounting in the case of first two types is simple. Only a record of expenses 
incurred at the branch has to be maintained.  
But however, a retail branch is essentially a sale agency that principally sells goods 
supplied by the head office for cash and, if so authorized, also on credit to approved 
customers. Generally, cash collected is deposited into a local bank to the credit of 
the head office and the head office issues cheques or transfers funds thereon for 
meeting the expenses of the branch. In addition, the Branch Manager is provided 
with a ‘float’ for petty expenses which is replenished from time to time on an 
imprest basis. If, however, the branch also sells certain lines of goods, directly 
purchased by it, the branch retains a part of the sale proceeds to pay for the goods 
so purchased. 
 
Page 5


 
 
 
 
LEARNING OUTCOMES 
  
 
 
ACCOUNTING FOR BRANCHES 
INCLUDING FOREIGN 
BRANCHES 
 
 
 
After studying this chapter, you will be able to– 
? Understand concept of branches and their classification from 
accounting point of view.  
? Distinguish between the accounting treatment of dependent 
branches and independent branches. 
? Learn various methods of charging goods to branches. 
? Solve the problems, when goods are sent to branch at wholesale 
price. 
? Prepare the reconciliation statement of branch and head office 
transactions after finding the reasons for their disagreement. 
? Incorporate branch balances in the head office books. 
? Differentiate between integral and non-integral foreign branches. 
? Learn the techniques of foreign currency translation in case of 
foreign branches. 
 
 
13 
CHAPTER 
 
 
13.2 
 
ACCOUNTING 
  
 
 
 
 1. INTRODUCTION 
A branch can be described as any establishment carrying on either the same or 
substantially the same activity as that carried on by head office of the company. It 
must also be noted that the concept of a branch means existence of a head office; 
for there can be no branch without a head office - the principal place of business. 
Branch offices are of a great utility in the sense that they allow business to be 
expanded closer to the clients and hence they facilitate face to face interaction with 
customers.  
Classification of Branches
Inland Branches
Dependent Branches for which 
whole accounting records are 
kept at Head Office 
Independent Branches which 
maintain independent 
accounting records
Foreign Branches
Methods of maintaining accounts of Dependent Branches
Goods invoiced at cost or 
selling price
Debtors 
Method
Stock and 
Debtors 
Method
Trading and profit 
and loss account 
method (Final 
Accounts method)
Goods invoiced at 
wholesale price
Whole sale branches 
method 
 
 
 
13.3 
 
ACCOUNTING FOR BRANCHES INCLUDING FOREIGN BRANCHES 
From the accounting point of view, branches may be classified as follows: 
• Inland Branches which can be further classified as: 
(a) Independent Branches which maintain independent accounting records 
(b) Dependent Branches for which whole accounting records are kept at 
Head Office 
• Foreign Branches 
Difference between branch and department 
Branch: Establishment at location different from Head Office to carry either same 
or substantially same activity as carried on by Head Office 
Department: Division of a large organization dealing with a various kind of activity 
at the same location. 
Let’s take an example of a CA Firm working in the field of Auditing, Taxation and 
Finance having office at Mumbai, Chennai and Delhi practicing such fields. The CA 
firm has various branches in different cities, i.e., Mumbai, Chennai and Delhi, also it 
has various department of Auditing, Taxation and Finance at one particular branch 
(location). 
 2. DISTINCTION BETWEEN BRANCH ACCOUNTS 
AND DEPARTMENTAL ACCOUNTS 
Basis of distinction Branch Accounts Departmental 
Accounts 
1. Maintenance of 
accounts 
Branch accounts may be 
maintained either at 
branch or at head office. 
Departmental accounts 
are maintained at one 
place only. 
2.  Apportionment of 
common expenses 
As expenses in respect of 
each branch can be 
identified, so the 
apportionment problem 
never arises. 
Common expenses are 
distributed among the 
departments concerned 
on some equitable basis 
considered suitable in 
the case. 
3.  Reconciliation Reconciliation of head 
office and branch 
accounts is necessary in 
Such problem never 
arises. 
 
 
13.4 
 
ACCOUNTING 
case of Branches 
maintaining independent 
accounting records at the 
end of the accounting 
year. 
4.  Conversion of 
foreign currency 
figures 
At the time of finalization 
of accounts, conversion 
of figures of foreign 
branch is necessary.  
Such problem never 
arises. 
 3. DEPENDENT BRANCHES  
When the business policies and the administration of a branch are wholly controlled 
by the head office and its accounts also are maintained by it, the branch is 
described as Dependent branch. Branch accounts, in such a case, are maintained at 
the head office out of reports and returns received from the branch. Some of the 
significant types of branches that are operated in this manner are described below: 
(a)  A branch set up merely for booking orders that are executed by the head 
office. Such a branch only transmits orders to the head office; 
(b)  A branch established at a commercial center for the sale of goods supplied 
by the head office, and under its direction all collections are made by the 
H.O.; and  
(c) A branch for the retail sale of goods, supplied by the head office. 
Accounting in the case of first two types is simple. Only a record of expenses 
incurred at the branch has to be maintained.  
But however, a retail branch is essentially a sale agency that principally sells goods 
supplied by the head office for cash and, if so authorized, also on credit to approved 
customers. Generally, cash collected is deposited into a local bank to the credit of 
the head office and the head office issues cheques or transfers funds thereon for 
meeting the expenses of the branch. In addition, the Branch Manager is provided 
with a ‘float’ for petty expenses which is replenished from time to time on an 
imprest basis. If, however, the branch also sells certain lines of goods, directly 
purchased by it, the branch retains a part of the sale proceeds to pay for the goods 
so purchased. 
 
 
 
13.5 
 
ACCOUNTING FOR BRANCHES INCLUDING FOREIGN BRANCHES 
 4. METHODS OF CHARGING GOODS TO 
BRANCHES 
Goods may be invoiced to branches (1) at cost; or (2) at selling price; or (3) in case 
of retail branches, at wholesale price. 
Selling price method is adopted where the goods would be sold at a fixed price by 
the branch. It is suitable for dealers in tea, petrol, ghee, etc. In this way, greater 
control can be exercised over the working of a branch in as much as that the branch 
balance in the head office books would always be composed of the value of unsold 
stock at the branch and remittances or goods in transit.  
 
 5. ACCOUNTING FOR DEPENDENT BRANCHES 
Dependent branch does not maintain a complete record of its transactions. The 
Head office may maintain accounts of dependent branches in any of the following 
methods: 
 
Goods may be invoiced to branches 
At cost At selling price
In case of retail 
branches, at wholesale 
price