Branch problem 1

Accounting for Branches Including Foreign Branch Accounts

Types of branches

• Dependent branches
• Independent branches
Based on accounting point of view, branches may be classified as follows:
• Branches in respect of which the whole of the accounting records are kept at the
head office
• Branches which maintain independent accounting records, and
• Foreign Branches.

System of accounting

• Debtors System: under this system head office makes a branch account.
Anything given to branch is debited and anything received from branch would be
credited.
• Branch trading and profit and loss account method/branch account method:
Under this system head office prepares (a) profit and loss account (b) branch
account taking each branch as a separate entity.
Stock and debtors system: Under this system head office opens:
• Branch stock account
• Branch debtors account
• Branch asset account
• Branch expenses account
• Branch adjustment account

Types of Foreign branches :

Integral Foreign Operation (IFO): It is a foreign operation, the activities of which are an integral part of those of the reporting enterprise.
Non-Integral Foreign Operation (NFO): It is a foreign operation that is not an
Integral Foreign Operation. The business of a NFO is carried on in a substantially
independent way by accumulating cash and other monetary items, incurring
expenses, generating income and arranging borrowing in its local currency

Non-Integral Foreign Operation -translation
• Balance sheet items i.e. Assets and Liabilities both monetary and non-monetary –
apply closing exchange rate.
• Items of income and expenses – At actual exchange rates on the date of
transactions
• Resulting exchange rate difference should be accumulated in a “foreign currency
translation reserve” until the disposal of “net investment in non-integral foreign
operation”.
Integral Foreign Operation (IFO) - translation
• at the rate prevailing on the date of transaction