Chapter 15: Branch Accounting (including Foreign Branches) - Test 2: answer key

Question 1 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. Sterling Garments Ltd, Mumbai, has an independent Jaipur branch that keeps its own double-entry records and a Head Office Current Account; HO keeps a Branch Current Account. On 31 March 2027, before reconciliation, the Branch Current A/c in HO books showed a debit of ₹13,17,000, while the Head Office Current A/c in branch books showed a credit of ₹11,68,000. Scrutiny shows: (i) goods invoiced by HO ₹95,000 were in transit and not recorded by the branch; (ii) cash ₹60,000 remitted by the branch on 31 March reached HO on 2 April; (iii) HO collected ₹42,000 directly from a Jaipur customer but did not intimate the branch; (iv) the branch paid ₹18,000 to an HO supplier on HO instruction, but HO omitted the entry; (v) HO allocated corporate overhead ₹25,000, not recorded by the branch; (vi) the branch received ₹7,000 fixed-deposit interest belonging to HO on oral instruction, but HO did not record it. The branch has already recorded the cash remittance, supplier payment and FD interest; HO has already recorded the dispatch, direct collection and overhead allocation. The company records in-transit items in the recipient’s books as its policy. No other differences exist and tax effects are ignored. The HO accountant is finalising the reconciliation statement and year-end incorporation entries. The branch’s trial balance otherwise agrees with HO records.

In the HO books, what adjusting entry is required for the ₹60,000 cash remitted by the branch but not received by HO on 31 March 2027?

1. Cash in Transit A/c Dr ₹60,000; To Branch Current A/c ₹60,000 (correct answer)
2. Branch Current A/c Dr ₹60,000; To Cash in Transit A/c ₹60,000
3. Bank A/c Dr ₹60,000; To Branch Current A/c ₹60,000
4. No entry in HO books; only the branch records cash in transit

Answer: A — Cash in Transit A/c Dr ₹60,000; To Branch Current A/c ₹60,000

Explanation. The branch has already recorded the remittance by debiting HO Current A/c and crediting Bank. HO has not received the cash, so it must recognise cash in transit and reduce the debit balance of the Branch Current A/c. The entry is Cash in Transit A/c Dr ₹60,000; To Branch Current A/c ₹60,000. Option (c) is wrong because bank is not debited until cash is actually received; option (d) is wrong because HO must record the in-transit item.

Where it goes wrong. Recording bank receipt immediately or omitting HO entry because branch already recorded remittance.

Authority. ICAI Study Material Chapter 15, Para 7.1; AS 11 para 13 (cash in transit concept)

Question 2 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

In the Jaipur branch books, what entry records the goods in transit of ₹95,000?

1. Purchases A/c Dr ₹95,000; To Head Office Current A/c ₹95,000
2. Goods in Transit A/c Dr ₹95,000; To Head Office Current A/c ₹95,000 (correct answer)
3. Head Office Current A/c Dr ₹95,000; To Goods in Transit A/c ₹95,000
4. No entry in branch books because goods have not physically arrived

Answer: B — Goods in Transit A/c Dr ₹95,000; To Head Office Current A/c ₹95,000

Explanation. Where goods dispatched by HO are in transit on the closing date and the recipient branch policy records in-transit items, the branch debits Goods in Transit and credits HO Current A/c. This increases branch assets and the credit balance due to HO. The branch does not debit Purchases because the goods are not yet received into stock. Option (d) ignores the recipient-record policy stated in the scenario.

Where it goes wrong. Treating goods in transit as purchases or ignoring the item entirely.

Authority. ICAI Study Material Chapter 15, Para 7.1; ICAI Study Material Chapter 15, Para 7.2

Question 3 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

After all reconciliation adjustments, what is the corrected balance of the Head Office Current A/c in the Jaipur branch books?

1. ₹12,21,000 credit
2. ₹11,68,000 credit
3. ₹12,46,000 credit (correct answer)
4. ₹12,68,000 credit

Answer: C — ₹12,46,000 credit

Explanation. Branch books start with HO Current A/c credit ₹11,68,000. Add goods in transit ₹95,000; deduct HO direct collection ₹42,000 not recorded by branch; add HO overhead allocation ₹25,000. The cash remittance, supplier payment and FD interest are already recorded by the branch. Corrected credit = 11,68,000 + 95,000 − 42,000 + 25,000 = ₹12,46,000.

Where it goes wrong. Adjusting items already recorded by the branch or ignoring the overhead allocation.

Authority. ICAI Study Material Chapter 15, Para 7.1; ICAI Study Material Chapter 15, Para 7.2

Question 4 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

What entry should the Jaipur branch pass for the ₹25,000 corporate overhead allocated by HO but not recorded by the branch?

1. Head Office Current A/c Dr ₹25,000; To Expenses A/c ₹25,000
2. No entry; only HO records the allocation
3. Bank A/c Dr ₹25,000; To Head Office Current A/c ₹25,000
4. Expenses A/c Dr ₹25,000; To Head Office Current A/c ₹25,000 (correct answer)

Answer: D — Expenses A/c Dr ₹25,000; To Head Office Current A/c ₹25,000

Explanation. HO has allocated its own expense to the branch. In HO books the entry is Branch A/c Dr and Expense A/c Cr. In branch books, the reciprocal entry is Expenses A/c Dr ₹25,000; To Head Office Current A/c ₹25,000. This records the charge and increases the amount payable to HO. Option (a) reverses the entry, and option (b) ignores the branch’s obligation.

Where it goes wrong. Reversing the debit and credit or omitting branch entry because HO has already recorded it.

Authority. ICAI Study Material Chapter 15, Para 7.2; ICAI Study Material Chapter 15, Para 7.2(3)

Question 5 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

Scenario. Vardhan Chemicals Ltd, Pune, operates an independent Kochi branch. The branch maintains complete books, prepares its own final accounts and closes its revenue accounts to the Head Office Current Account. On 31 March 2027, after closing revenue accounts but before incorporation in HO books, the branch reports net profit ₹4,80,000 and a credit balance in HO Current A/c of ₹27,00,000. The branch’s assets are: PPE ₹18,00,000; inventory ₹6,40,000; trade receivables ₹4,20,000; cash ₹1,10,000. Liabilities are trade payables ₹2,30,000 and outstanding expenses ₹40,000. In HO books, the Branch A/c before incorporating the current year’s profit has a debit balance of ₹22,20,000. HO had already recorded goods sent to branch and expenses; the branch had recorded all HO allocations. The branch has no goods or cash in transit, no inter-branch balance, and no intangible assets. Depreciation has already been charged in branch books. The company wants to prepare consolidated financial statements and does not wish to treat branch profit as dividend. The accountant must pass entries for branch profit and for individual assets/liabilities, not merely adjust the net balance. Tax effects are ignored; all amounts are in rupees.

In the HO books, what entry incorporates the Kochi branch’s net profit of ₹4,80,000?

1. Branch A/c Dr ₹4,80,000; To Profit & Loss A/c ₹4,80,000 (correct answer)
2. Profit & Loss A/c Dr ₹4,80,000; To Branch A/c ₹4,80,000
3. Branch A/c Dr ₹4,80,000; To Branch Profit & Loss A/c ₹4,80,000
4. No entry; branch profit is automatically included in consolidated financial statements

Answer: A — Branch A/c Dr ₹4,80,000; To Profit & Loss A/c ₹4,80,000

Explanation. The branch has closed its revenue accounts to the HO Current A/c. To incorporate the branch profit in HO books, HO debits Branch A/c and credits its own Profit & Loss A/c. This increases the debit balance of Branch A/c to the net assets figure. Option (b) is the reverse entry, while option (d) ignores the separate incorporation requirement.

Where it goes wrong. Crediting Branch A/c instead of debiting it, or assuming consolidation requires no entry.

Authority. ICAI Study Material Chapter 15, Para 8; ICAI Study Material Chapter 15, Para 8 Method II

Question 6 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

In the entry incorporating the branch assets and liabilities in HO books, what is the net amount credited to Branch A/c?

1. ₹29,70,000
2. ₹27,00,000 (correct answer)
3. ₹2,70,000
4. ₹22,20,000

Answer: B — ₹27,00,000

Explanation. Total branch assets = 18,00,000 + 6,40,000 + 4,20,000 + 1,10,000 = ₹29,70,000. Total liabilities = 2,30,000 + 40,000 = ₹2,70,000. Net assets = ₹27,00,000. In the incorporation entry, individual assets are debited, individual liabilities are credited, and the balancing credit goes to Branch A/c. Hence Branch A/c is credited with ₹27,00,000.

Where it goes wrong. Crediting gross assets ₹29,70,000 or using the pre-profit Branch A/c balance ₹22,20,000.

Authority. ICAI Study Material Chapter 15, Para 8; ICAI Study Material Chapter 15, Para 8 Method II

Question 7 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

How should the Kochi branch’s outstanding expenses of ₹40,000 be treated in the HO incorporation entry?

1. Debit Branch A/c ₹40,000
2. Credit Branch A/c ₹40,000
3. Credit Branch Outstanding Expenses A/c ₹40,000 (correct answer)
4. Ignore the item because it is already included in branch profit

Answer: C — Credit Branch Outstanding Expenses A/c ₹40,000

Explanation. Outstanding expenses are a liability of the branch. In the incorporation entry, HO debits branch assets and credits branch liabilities individually. Thus, Branch Outstanding Expenses A/c is credited with ₹40,000 and shown as a liability. Crediting Branch A/c would double-count the net effect already captured through net assets, and ignoring it would understate liabilities.

Where it goes wrong. Treating outstanding expenses as a reduction of Branch A/c instead of a separate liability.

Authority. ICAI Study Material Chapter 15, Para 8; Schedule III Division I, Companies Act, 2013

Question 8 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

After passing the profit incorporation entry and the asset/liability incorporation entry, what is the balance in the Branch A/c in HO books?

1. ₹4,80,000 debit
2. ₹27,00,000 debit
3. ₹22,20,000 credit
4. Nil (correct answer)

Answer: D — Nil

Explanation. Opening Branch A/c debit is ₹22,20,000. Add current year branch profit ₹4,80,000 by debiting Branch A/c, giving ₹27,00,000. The asset/liability incorporation entry credits Branch A/c with net assets ₹27,00,000. Therefore, the Branch A/c is exactly closed to nil. A non-zero balance indicates an error in incorporation.

Where it goes wrong. Forgetting to add branch profit before net asset incorporation or crediting gross assets.

Authority. ICAI Study Material Chapter 15, Para 8; ICAI Study Material Chapter 15, Para 8 Method II

Question 9 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

Scenario. HO dispatched goods costing ₹1,20,000 to a branch. By 31 March 2027, the branch had received goods only worth ₹95,000. The branch records in-transit items in its own books. What entry should the branch pass?

HO dispatched goods costing ₹1,20,000 to a branch. By 31 March 2027, the branch had received goods only worth ₹95,000. The branch records in-transit items in its own books. What entry should the branch pass?

1. Goods in Transit A/c Dr ₹25,000; To Head Office Current A/c ₹25,000 (correct answer)
2. Purchases A/c Dr ₹25,000; To Head Office Current A/c ₹25,000
3. Head Office Current A/c Dr ₹25,000; To Goods in Transit A/c ₹25,000
4. No entry until goods are physically received

Answer: A — Goods in Transit A/c Dr ₹25,000; To Head Office Current A/c ₹25,000

Explanation. The difference between goods dispatched and goods received is goods in transit = ₹1,20,000 − ₹95,000 = ₹25,000. If the recipient branch records in-transit items, it debits Goods in Transit and credits HO Current A/c. Purchases are not debited because the goods have not entered the branch’s physical stock. Option (d) ignores the stated policy.

Where it goes wrong. Debiting purchases or recording only on physical receipt.

Authority. ICAI Study Material Chapter 15, Para 7.1

Question 10 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. A branch remitted ₹85,000 to HO on 31 March 2027. HO received the cash on 3 April 2027. What entry should HO pass on 31 March 2027?

A branch remitted ₹85,000 to HO on 31 March 2027. HO received the cash on 3 April 2027. What entry should HO pass on 31 March 2027?

1. Bank A/c Dr ₹85,000; To Branch A/c ₹85,000
2. Cash in Transit A/c Dr ₹85,000; To Branch A/c ₹85,000 (correct answer)
3. Branch A/c Dr ₹85,000; To Cash in Transit A/c ₹85,000
4. No entry in HO books until cash is received

Answer: B — Cash in Transit A/c Dr ₹85,000; To Branch A/c ₹85,000

Explanation. The branch has already recorded the remittance by reducing its HO Current A/c. Since HO has not received cash, it must debit Cash in Transit and credit Branch A/c ₹85,000. This reduces the Branch A/c debit balance and recognises an asset in transit. Debiting Bank is premature, and omitting the entry leaves the two current accounts unreconciled.

Where it goes wrong. Debiting bank before actual receipt or making no HO entry because cash is in transit.

Authority. ICAI Study Material Chapter 15, Para 7.1

Question 11 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

Scenario. Kolkata branch paid ₹12,000 for an advertisement relating to Delhi branch. The transaction is routed through HO. What entry is passed in HO books?

Kolkata branch paid ₹12,000 for an advertisement relating to Delhi branch. The transaction is routed through HO. What entry is passed in HO books?

1. Advertisement A/c Dr ₹12,000; To Bank A/c ₹12,000
2. Kolkata Branch A/c Dr ₹12,000; To Delhi Branch A/c ₹12,000
3. Delhi Branch A/c Dr ₹12,000; To Kolkata Branch A/c ₹12,000 (correct answer)
4. No entry in HO books because branches will record directly

Answer: C — Delhi Branch A/c Dr ₹12,000; To Kolkata Branch A/c ₹12,000

Explanation. Inter-branch transactions are generally routed through HO. Kolkata branch has incurred expenditure for Delhi branch. In HO books, Delhi Branch A/c is debited (beneficiary) and Kolkata Branch A/c is credited (payer), ₹12,000. In branch books, Kolkata credits HO and Delhi debits expense with a corresponding HO credit. Option (a) ignores the inter-branch routing.

Where it goes wrong. Debiting the payer branch instead of the beneficiary branch.

Authority. ICAI Study Material Chapter 15, Para 7.2(1)

Question 12 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. A branch purchased equipment for ₹2,00,000, but the asset account is retained in HO books. Depreciation is 15% p.a. What year-end entry should the branch pass?

A branch purchased equipment for ₹2,00,000, but the asset account is retained in HO books. Depreciation is 15% p.a. What year-end entry should the branch pass?

1. Depreciation A/c Dr ₹30,000; To Equipment A/c ₹30,000
2. Head Office Current A/c Dr ₹30,000; To Depreciation A/c ₹30,000
3. Equipment A/c Dr ₹30,000; To Head Office Current A/c ₹30,000
4. Depreciation A/c Dr ₹30,000; To Head Office Current A/c ₹30,000 (correct answer)

Answer: D — Depreciation A/c Dr ₹30,000; To Head Office Current A/c ₹30,000

Explanation. The asset is not carried in branch books, so the branch cannot credit Equipment. HO records depreciation by debiting Branch A/c and crediting Branch Asset A/c. The branch’s reciprocal entry is Depreciation A/c Dr ₹30,000; To HO Current A/c ₹30,000. Option (a) wrongly credits an asset that is not in branch books; option (b) reverses the entry.

Where it goes wrong. Crediting equipment in branch books even though the asset account is retained at HO.

Authority. ICAI Study Material Chapter 15, Para 7.2(2)

Question 13 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

Scenario. HO allocated ₹45,000 of its expenses to a branch, but the branch has not recorded the allocation. What rectification entry is required in the branch books?

HO allocated ₹45,000 of its expenses to a branch, but the branch has not recorded the allocation. What rectification entry is required in the branch books?

1. Expenses A/c Dr ₹45,000; To Head Office Current A/c ₹45,000 (correct answer)
2. Head Office Current A/c Dr ₹45,000; To Expenses A/c ₹45,000
3. Profit & Loss A/c Dr ₹45,000; To Bank A/c ₹45,000
4. No entry; HO allocation is not recorded in branch books

Answer: A — Expenses A/c Dr ₹45,000; To Head Office Current A/c ₹45,000

Explanation. When HO allocates its expenses to a branch, HO debits Branch A/c and credits the relevant expense head. The branch records the reciprocal effect by debiting Expenses A/c and crediting HO Current A/c ₹45,000. Option (b) reverses the entry; option (d) ignores the branch’s obligation to record the allocated cost.

Where it goes wrong. Reversing the entry or assuming HO allocation is not recorded by the branch.

Authority. ICAI Study Material Chapter 15, Para 7.2(3)

Question 14 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. On 31 March 2027, HO’s Branch A/c showed a debit of ₹5,00,000 and the branch’s HO Current A/c showed a credit of ₹4,60,000. Goods in transit were ₹30,000; cash in transit was ₹20,000; HO had collected ₹10,000 directly from a branch debtor but the branch had not recorded it. What is the corrected common balance?

On 31 March 2027, HO’s Branch A/c showed a debit of ₹5,00,000 and the branch’s HO Current A/c showed a credit of ₹4,60,000. Goods in transit were ₹30,000; cash in transit was ₹20,000; HO had collected ₹10,000 directly from a branch debtor but the branch had not recorded it. What is the corrected common balance?

1. ₹4,90,000
2. ₹4,80,000 (correct answer)
3. ₹4,70,000
4. ₹4,60,000

Answer: B — ₹4,80,000

Explanation. Correct HO Branch A/c: ₹5,00,000 − cash in transit ₹20,000 = ₹4,80,000. Correct branch HO Current A/c: ₹4,60,000 + goods in transit ₹30,000 − direct collection not recorded ₹10,000 = ₹4,80,000. Both sides agree at ₹4,80,000. Option (a) ignores the direct collection; option (d) ignores both in-transit adjustments.

Where it goes wrong. Adding goods in transit to HO or forgetting to reduce branch for direct collection.

Authority. ICAI Study Material Chapter 15, Para 7.1

Question 15 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. Branch A transferred goods costing ₹50,000 to Branch B at an invoice price of ₹60,000. The transaction is routed through HO. What entry is passed in HO books?

Branch A transferred goods costing ₹50,000 to Branch B at an invoice price of ₹60,000. The transaction is routed through HO. What entry is passed in HO books?

1. Branch A A/c Dr ₹60,000; To Branch B A/c ₹60,000
2. Purchases A/c Dr ₹60,000; To Branch B A/c ₹60,000
3. Branch B A/c Dr ₹60,000; To Branch A A/c ₹60,000 (correct answer)
4. Branch B A/c Dr ₹50,000; To Branch A A/c ₹50,000

Answer: C — Branch B A/c Dr ₹60,000; To Branch A A/c ₹60,000

Explanation. Inter-branch transfers are recorded through HO at the invoice value agreed between the branches. Branch B is the recipient, so HO debits Branch B A/c; Branch A is the supplier, so HO credits Branch A A/c. The entry is ₹60,000 each. Using cost ₹50,000 ignores the agreed invoice value, while option (a) reverses the recipient and supplier.

Where it goes wrong. Using cost instead of invoice value or reversing the branches.

Authority. ICAI Study Material Chapter 15, Para 7.2(1)

Question 16 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · medium

Scenario. An independent branch has earned a net profit of ₹1,80,000 for the year. What entry is passed in HO books to incorporate this profit?

An independent branch has earned a net profit of ₹1,80,000 for the year. What entry is passed in HO books to incorporate this profit?

1. Profit & Loss A/c Dr ₹1,80,000; To Branch A/c ₹1,80,000
2. Branch A/c Dr ₹1,80,000; To Branch Profit & Loss A/c ₹1,80,000
3. No entry is required in HO books
4. Branch A/c Dr ₹1,80,000; To Profit & Loss A/c ₹1,80,000 (correct answer)

Answer: D — Branch A/c Dr ₹1,80,000; To Profit & Loss A/c ₹1,80,000

Explanation. The branch has closed its revenue accounts to the HO Current A/c. HO must recognise the branch profit by debiting Branch A/c and crediting its own Profit & Loss A/c ₹1,80,000. This increases the Branch A/c debit balance. Option (a) is the reverse; option (c) ignores the requirement to incorporate branch profit in HO books.

Where it goes wrong. Crediting Branch A/c instead of debiting it or omitting the entry.

Authority. ICAI Study Material Chapter 15, Para 8

Question 17 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. HO charges a branch ₹75,000 for centralised services rendered by HO. What entry is passed in HO books?

HO charges a branch ₹75,000 for centralised services rendered by HO. What entry is passed in HO books?

1. Branch A/c Dr ₹75,000; To Appropriate Expense A/c ₹75,000 (correct answer)
2. Profit & Loss A/c Dr ₹75,000; To Branch A/c ₹75,000
3. Branch A/c Dr ₹75,000; To Profit & Loss A/c ₹75,000
4. No entry is passed in HO books

Answer: A — Branch A/c Dr ₹75,000; To Appropriate Expense A/c ₹75,000

Explanation. A charge for centralised services is a recovery of HO expense. HO debits Branch A/c and credits the relevant expense head, thereby reducing the expense in HO books. It is not a direct credit to Profit & Loss A/c. The branch records the reciprocal entry by debiting Expenses A/c and crediting HO Current A/c. Option (b) reverses the effect.

Where it goes wrong. Crediting Profit & Loss A/c directly instead of reducing the relevant expense head.

Authority. ICAI Study Material Chapter 15, Para 7.2(3)

Question 18 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. A branch has total assets of ₹8,50,000 and liabilities of ₹1,20,000. Its HO Current A/c shows a credit balance of ₹6,80,000 before recording current year profit. What is the branch profit for the year?

A branch has total assets of ₹8,50,000 and liabilities of ₹1,20,000. Its HO Current A/c shows a credit balance of ₹6,80,000 before recording current year profit. What is the branch profit for the year?

1. ₹30,000
2. ₹50,000 (correct answer)
3. ₹1,20,000
4. ₹1,70,000

Answer: B — ₹50,000

Explanation. Net assets of the branch = assets ₹8,50,000 − liabilities ₹1,20,000 = ₹7,30,000. The HO Current A/c before profit is ₹6,80,000 credit. The difference is the unrecorded profit = ₹7,30,000 − ₹6,80,000 = ₹50,000. Option (d) wrongly adds liabilities, and option (a) subtracts the profit instead of deriving it.

Where it goes wrong. Using gross assets instead of net assets or adding liabilities instead of deducting them.

Authority. ICAI Study Material Chapter 15, Para 8

Question 19 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. HO collected ₹35,000 directly from a customer of the branch. The branch has now received intimation of this collection. What entry should the branch pass?

HO collected ₹35,000 directly from a customer of the branch. The branch has now received intimation of this collection. What entry should the branch pass?

1. Bank A/c Dr ₹35,000; To Debtors A/c ₹35,000
2. Debtors A/c Dr ₹35,000; To Head Office Current A/c ₹35,000
3. Head Office Current A/c Dr ₹35,000; To Debtors A/c ₹35,000 (correct answer)
4. No entry; HO will adjust in its own books

Answer: C — Head Office Current A/c Dr ₹35,000; To Debtors A/c ₹35,000

Explanation. HO has collected branch debt directly. In HO books, the entry is Bank A/c Dr and Branch A/c Cr. The branch must reduce its debtor balance and also reduce the amount due to HO by debiting HO Current A/c and crediting Debtors A/c ₹35,000. Option (a) wrongly debits bank, as the branch did not receive cash. Option (d) ignores the necessary branch adjustment.

Where it goes wrong. Debiting bank in branch books or omitting the adjustment because HO has already recorded it.

Authority. ICAI Study Material Chapter 15, Para 7.1

Question 20 · 2 marks · Chapter 15: Branch Accounting (including Foreign Branches) · hard

Scenario. Delhi branch incurred ₹9,000 on behalf of Chennai branch. The transaction is routed through HO. What entry should Chennai branch pass?

Delhi branch incurred ₹9,000 on behalf of Chennai branch. The transaction is routed through HO. What entry should Chennai branch pass?

1. Head Office Current A/c Dr ₹9,000; To Expenses A/c ₹9,000
2. Delhi Branch A/c Dr ₹9,000; To Bank A/c ₹9,000
3. Expenses A/c Dr ₹9,000; To Delhi Branch A/c ₹9,000
4. Expenses A/c Dr ₹9,000; To Head Office Current A/c ₹9,000 (correct answer)

Answer: D — Expenses A/c Dr ₹9,000; To Head Office Current A/c ₹9,000

Explanation. Chennai branch is the beneficiary of expenditure incurred by Delhi branch. Since inter-branch transactions are routed through HO, Chennai debits the relevant expense and credits HO Current A/c ₹9,000. It does not deal directly with Delhi Branch A/c. HO will debit Chennai Branch A/c and credit Delhi Branch A/c. Option (a) reverses the entry.

Where it goes wrong. Recording a direct Delhi Branch A/c in Chennai books instead of routing through HO.

Authority. ICAI Study Material Chapter 15, Para 7.2(1)