EG Company Limited, a manufacturing business, exports some of its products through an overseas branch whose currency is ‘florins’, which carries out the final assembly operations before selling the goods.

The trial balances of the head office and branch at 30 June 2008 were:

The following adjustments are to be made:
1 The cost of sales figures include a depreciation charge of 10% per annum on cost for machinery.
2 A provision of £300 for unrealised profit in branch inventory is to be made.
3 On 26 June 2008 the branch remitted 16,000 FI.; these were received by the head office on 4 July and realised £1,990.
4 During May a branch customer in error paid the head office for goods supplied. The amount due was 320 Fl. which realised £36. It has been correctly dealt with by head office but not yet entered in the branch books.
5 A provision has to be made for a commission of 5% of the net profit of the branch after charging such commission, which is due to the branch manager.

The rates of exchange were:

You are required to prepare, for internal use:

(a) detailed operating accounts for the year ended 30 June 2008;4¥°s note

(b) combined head office and branch balance sheet as at 30 June 2008;

(c) the branch account in the head office books, in both sterling and currency, the opening balance on 1 July 2007 being £25,136 (189,260 Fl.).
Taxation is to be ignored.

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Head Office Branch Fl. Fl. Freehold buildings at cost 14,000 63,000 Accounts receivable and Accounts payable 8,900 9,500 36,000 1,560 Sales 104,000 432,000 Authorised and issued capital 40,000 Components sent to branch 35,000 Head office/branch accounts 60,100 504,260 Branch cost of sales 360,000 Depreciation provision, machinery 1,500 56,700 Head office cost of sales (including goods to branch) 59,000 Administration costs 15,200 18,000 Inventory at 30 June 2008 28,900 11,520 Retained profits 2,000 Machinery at cost 6,000 126,000 Remittances 28,000 272,000 Balance at bank 4,600 79,200 Selling and distribution costs 23,300 28,800 220,000 220,000 994,520 994,520