ECO – 14: Accountancy – II – Solved IGNOU Assignment 2017-18

Question 1. Explain the different system of maintaining the accounts of a dependent branch. How profit is ascertained under each system? Discuss.


Dependent branches do not keep a complete set of books. Most of their transactions are recorded at the head office level. The accounting system adopted by head office for a branch depends upon the size of a branch and the degree of control to be exercised by the head office. The following are the various methods by which the head office usually keeps branch accounts in its books:

i) Debtors System: This system is generally adopted for those branches which are relatively small in size. Under this system, the head office opens a Branch Account for each branch in which it records all transactions relating to the branch. The Branch Account is prepared in such a manner that it also helps in ascertaining the branch profit or loss.

ii) Final Accounts System: Under this system, the head office prepares Trading and ‘Profit and Loss Account’ in order to find out profit or loss of each branch and a Branch Account to find out the amount due to, or due from, that branch, In this case, the Branch Account simply acts as a personal account.

iii) Stock and Debtors System: Under this system, the head office does not open any ‘Branch Account. For each branch, it prepares a Branch Stock Account, a Branch’ Expenses Account, a Branch Adjustment Account and Goods sent to Branch Account to find out the profit or loss of each branch.

 

Question 2. Explain the term ‘Default’ and ‘Repossession’ both in relation to ‘hire purchase transaction’ and ‘installment sale transaction’. Describe the difference between accounting treatment under hire purchase system and installment payment system.

DEFAULT AND REPOSSESSION
As per hire purchase agreement. when the purchaser or hirer fails to pay his required instalments and by that agreement the seller or owner gets the right to repossess the goods or assets for such default. Under such circumstances, the seller may repossess the goods or assets entirely or partially. Their accounting treatments under different situations are shown below.

Complete Repossession

In the books of buyer

1. All the necessary entries are to be shown up to the date of default as usual.

2. Then Vendor’s A/c is to be closed by debiting his A/c and crediting the Asset A/c.

3. After that, if there is any balance in the Asset A/c, the Asset A/c is to be closed by transferring the balance to Profit and Loss A/c.

In the books of seller

1. All necessary entries are to be shown up to the date of default as usual.

2. Then Purchaser’s A/c is to be closed by debiting Goods Repossessed A/c and crediting Purchaser’s A/c.

3. After that, if any expenditure is incurred for repair of the said asset/goods, the Goods Repossessed A/c is to be debited.

4. Subsequently, when the repossessed goods are sold, Cash/Bank A/c will be debited and Goods Repossessed A/c will be credited. If there is any balance in the Goods Returned A/c, it is to be transferred to Profit and Loss A/c.

Partial Repossession

In the books of buyer

1. All the necessary entries are to be shown up to the date of default as usual.

2. Then entry to be shown for the agreed value of the assets taken over by the seller by debiting Vendor’s A/c and crediting Assets A/c.

3. The remaining asset left by the seller will continue as before and will show the closing balance (c/d) of the Asset A/c. If there is any balance in the Asset A/c, it will represent profit/loss on repossession and is to be transferred to Profit and Loss A/c.

In the books of seller

1. All the necessary entries are to be shown up to the date of default as usual. Then Purchaser’s A/c is to be credited and Goods Returned A/c is to be debited for the assets taken over (as per the agreed value).

2. The Purchaser’s A/c will continue as per the new agreement.

3. After that, if any expenditure is incurred for repair of the said asset/goods, the Goods Repossessed A/c is to be debited.

4. Subsequently, when the repossessed goods are sold, Cash/Bank A/c will be debited and Goods Repossessed/Returned A/c will be credited. If there is any balance in the Goods Repossessed/Returned A/c, it is to be transferred to Profit and Loss A/c.

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