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Difficulty: Very hardIndependent Branch Accounts and Head Office Reconciliation

On 31st December 2025, the Head Office Current Account in the books of an independent branch showed a credit balance of ₦133,000, while the Branch Current Account in the Head Office ledger showed a debit balance of ₦189,000. Upon investigation, the following reconciliation items were discovered:

1. Goods in transit sent by the Head Office to the Branch valued at ₦24,000 were not yet recorded in the Branch books.
2. A cash remittance of ₦18,000 sent by the Branch on 28th December 2025 was received by the Head Office on 4th January 2026.
3. A management fee of ₦7,000 charged by the Head Office was mistakenly debited to the Head Office Current Account in the Branch ledger.

What is the correct reconciled balance of the inter-company current account at 31st December 2025?

  1. A
    ₦147,000
  2. B
    ₦164,000
  3. ₦171,000Answer
  4. D
    ₦207,000

Answer

The correct reconciled balance is ₦171,000.
Reconciling from either ledger yields a balance of ₦171,000. In the Head Office books, deducting ₦18,000 cash in transit from ₦189,000 debit gives ₦171,000 debit. In the Branch books, adding ₦24,000 goods in transit and ₦14,000 for the corrected management fee entry to ₦133,000 credit gives ₦171,000 credit.

Step-by-Step Solution

1
Adjust the Branch Current Account balance in the Head Office ledger for items in transit.
Unadjusted Debit Balance = ₦189,000. Deduct cash in transit of ₦18,000: ₦189,000 - ₦18,000 = ₦171,000 (Debit).
Cash remitted by the Branch before year-end but received by Head Office after year-end must be credited to the Branch Current Account in the Head Office books to reflect actual funds in transit.
2
Adjust the Head Office Current Account balance in the Branch ledger for unrecorded goods in transit.
Add unrecorded goods in transit of ₦24,000 to the Branch's credit balance of ₦133,000: ₦133,000 + ₦24,000 = ₦157,000 (Credit).
Goods dispatched by Head Office before year-end must be credited to the Head Office Current Account in Branch books upon reconciliation.
3
Correct the posting error regarding the management fee in the Branch ledger.
Add ₦14,000 (₦7,000 to reverse the wrong debit + ₦7,000 for the correct credit) to ₦157,000: ₦157,000 + ₦14,000 = ₦171,000 (Credit).
Because the management fee was mistakenly debited to the Head Office Current Account instead of credited, a credit entry of double the amount (₦14,000) is required to eliminate the error and record the charge correctly.

Key Concept

Independent Branch Head Office Reconciliation
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Topics

Independent Branch Accounts and Head Office Reconciliation