ICAI Notes: Accounting for Branches including Foreign Branches | Advanced Accounting for CA Intermediate PDF Download

 Page 1


 
 
 
 
LEARNING OUTCOMES 
a    
 
CHAPTER 
15 
 
 
 
 
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. 
 
 
 
© The Institute of Chartered Accountants of India
Page 2


 
 
 
 
LEARNING OUTCOMES 
a    
 
CHAPTER 
15 
 
 
 
 
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. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.2 
 
 
 
 
 
 
 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 
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 
 CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
Page 3


 
 
 
 
LEARNING OUTCOMES 
a    
 
CHAPTER 
15 
 
 
 
 
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. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.2 
 
 
 
 
 
 
 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 
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 
 CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
ACCOUNTING FOR BRANCHES INCLUDING  
FOREIGN BRANCHES 
    
v 
 15.3 
 
expanded closer to the clients and hence they facilitate face to face interaction 
with customers.  
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. 
© The Institute of Chartered Accountants of India
Page 4


 
 
 
 
LEARNING OUTCOMES 
a    
 
CHAPTER 
15 
 
 
 
 
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. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.2 
 
 
 
 
 
 
 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 
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 
 CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
ACCOUNTING FOR BRANCHES INCLUDING  
FOREIGN BRANCHES 
    
v 
 15.3 
 
expanded closer to the clients and hence they facilitate face to face interaction 
with customers.  
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. 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.4 
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 
case of Branches 
maintaining independent 
accounting records at the 
end of the accounting 
year. 
Such problem never 
arises. 
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. 
© The Institute of Chartered Accountants of India
Page 5


 
 
 
 
LEARNING OUTCOMES 
a    
 
CHAPTER 
15 
 
 
 
 
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. 
 
 
 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.2 
 
 
 
 
 
 
 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 
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 
 CHAPTER OVERVIEW 
© The Institute of Chartered Accountants of India
 
 
ACCOUNTING FOR BRANCHES INCLUDING  
FOREIGN BRANCHES 
    
v 
 15.3 
 
expanded closer to the clients and hence they facilitate face to face interaction 
with customers.  
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. 
© The Institute of Chartered Accountants of India
 
ADVANCED ACCOUNTING  
 15.4 
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 
case of Branches 
maintaining independent 
accounting records at the 
end of the accounting 
year. 
Such problem never 
arises. 
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. 
© The Institute of Chartered Accountants of India
 
 
ACCOUNTING FOR BRANCHES INCLUDING  
FOREIGN BRANCHES 
    
v 
 15.5 
 
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. 
  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.  
 
Goods may be invoiced to branches 
At cost At selling price
In case of retail 
branches, at wholesale 
price
© The Institute of Chartered Accountants of India