Branch | Part-5 | Q19-22 | Whole Sale Branch Method | Dependent Branch | by CA Pradeep Kalra

Whole Sale Branch Method
Under this method, the head office supplies goods to owned retail branches as well as to other retailers at wholesale price which is cost plus wholesale profit. The owned retail branches sell these goods to customers at list or catalogue price which is wholesale price plus retail profit.
In such a case the head office is interested in knowing the additional profit which has been earned by opening retail branch. For this purpose, Trading and Profit and Loss Account of the branch should be prepared in the usual manner taking the opening Stock, goods sent by H.O. / returned to H.O., Closing Stock, Losses of goods at wholesale price.
However, while preparing Trading and P & L Account of H.O., Stock Reserve (i.e., Loading equal to difference between wholesale price and its cost to H.O.) in respect of opening stock and closing stock at branch should be credited and debited respectively to Head Office Profit and Loss Account.
In such type of problems, first the relationship between Cost, Wholesale Profit and Retail Profit should be ascertained as follows:
Cost xxx
+ Wholesale Profit xxx
Wholesale Price xxx
+ Retail Profit xxx
Retail Price xxx
 Excess of wholesale price over the cost to HO is recognized as profit of the Head Office
 Excess of selling price over the wholesale price is recognized as profit of the branch.
The goods are supplied to the branch at wholesale price and the difference between wholesale price and cost price is treated as profit earned by the HO and is recognized in the books of HO. The cost to the branch is assumed to the wholesale price. The branch sells the goods at retail price and consequently the profit of the branch is assumed to be the difference between the retail price and
wholesale price.
Accounting Entries
HO Trading & Profit &Loss A/c Dr.
To Stock Reserve A/c (with loading on closing stock)
&
Stock Reserve A/c Dr.
To HO Trading & Profit & Loss A/c (with loading on opening stock)

 The unrealized profit on stock may be calculated by applying the following formula:-

 If closing stock of branch is not given in the question, it will be calculated as follows:
Opening Stock at Branch (at wholesale price) xxx
Add: Goods received from Head Office (at wholesale price) xxx
Total Goods Available with Branch xxx
Less: Invoice Price / Wholesale Price of Goods Sold xxx
[(Branch Sales × Wholesale) / Retail Price]
Closing Stock at Branch (at wholesale price) xxx

 If closing stock of head office is not given in questions, it will be calculated as follows:
Opening Stock (at cost) xxx
Add: Purchases during the period xxx
Total Goods Available xxx
Less: Cost of Goods sent to Branch during the period xxx

Less: Goods Sold to Retailers xxx

Less: Direct Sales to Customers, if any xxx

Closing Stock at Head Office xxx



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