QUESTION ON BRANCH ACCOUNTING

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MANISH KR. SHARMA (Querist)
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04 October 2010 RESPECTED ALL,

I WANT TO KNOW AS BELOW

WE ARE TRANSFERRED OUR GOODS TO OUR OTHER BRANCHES AT VARIOUS STATES @ COST PLUS SOME MARGINS AGAINST FORM `F` I HAVE TWO QUESTION REGARDING THIS AS BELOW

1. AT THE END OF THE YEAR WHAT IS THE TREATMENT OR JOURNAL ENTRY OF CLOSING STOCK IS HELD AT BRANCH IN WHICH THE PROFIT WAS INCLUDED.

2. SOME STOCK IS ALSO TRANSFERRED AT THE 30TH MARCH WHICH IS IN TRANSIT IT HAS ALSO CONTAINING THE PROFIT MARGIN SO WHAT IS THE JOURNAL ENTRY OF THE SAME AND WHAT IS THE TREATMENT OF PROFIT INCLUDING IN THE STOCK IN THE TRANSIT

MANISH KR. SHARMA

MANISH KR. SHARMA (Querist)
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25 January 2011 RESPECTED ALL,

I WANT TO KNOW AS BELOW

WE ARE TRANSFERRED OUR GOODS TO OUR OTHER BRANCHES AT VARIOUS STATES @ COST PLUS SOME MARGINS AGAINST FORM `F` I HAVE TWO QUESTION REGARDING THIS AS BELOW

1. AT THE END OF THE YEAR WHAT IS THE TREATMENT OR JOURNAL ENTRY OF CLOSING STOCK IS HELD AT BRANCH IN WHICH THE PROFIT WAS INCLUDED.

2. SOME STOCK IS ALSO TRANSFERRED AT THE 30TH MARCH WHICH IS IN TRANSIT IT HAS ALSO CONTAINING THE PROFIT MARGIN SO WHAT IS THE JOURNAL ENTRY OF THE SAME AND WHAT IS THE TREATMENT OF PROFIT INCLUDING IN THE STOCK IN THE TRANSIT

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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19 July 2025 1. Treatment of Closing Stock at Branch (with Profit included)

When goods are transferred from HO to Branch at cost + profit, the branch stock includes profit that is unrealized from the group perspective (HO and Branch are one entity).

Accounting Treatment:

At the end of the year, unrealized profit included in closing stock of branch needs to be eliminated to avoid overstating profit at group level.
So, journal entry at Head Office level to eliminate unrealized profit in branch closing stock:
Dr. Branch Profit Adjustment Account (Profit Eliminated)
Cr. Branch Stock Account (to reduce stock value)
This entry reduces the stock value to cost and removes profit from the books until goods are sold to outside parties.
The unrealized profit appears in the branch stock because branch accounts stock at transfer price (cost + margin).
2. Treatment of Stock in Transit on 30th March (including Profit Margin)

Stock in transit is physically not received by the branch but is recorded in branch books.

Such stock also includes profit margin, so it needs similar unrealized profit elimination.
Journal Entry for Stock in Transit:
Since stock in transit is yet to be received by the branch but recorded, unrealized profit on this stock is to be eliminated similarly:

Dr. Branch Profit Adjustment Account (for unrealized profit on stock in transit)
Cr. Branch Stock Account (stock in transit) or Transit Account
Alternatively, transit stock can be shown separately in branch trial balance as Goods-in-Transit, but the unrealized profit portion must be eliminated.
The profit margin included in stock in transit is treated the same as profit in closing stock — unrealized and hence to be excluded from profit.

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