LR, a trader, commenced business on 1 January 2012, with a head office and one branch.

All goods were purchased by the head office and goods sent to the branch were invoiced at a fixed selling price of 25% above cost. Ali sales, both by the head office and the branch, were made at the fixed selling price.

The following trial balance was extracted from the books at the head office at 31 December 2012.

Trial Balance

£ £

Capital 52,000 Drawings 1,740 Purchases 123,380 Sales 83,550 Goods sent to branch (at selling price) 56,250 Branch current account 24,550 Non-current assets 33,000 Accounts receivable and accounts payable 7,980 11,060 General expenses a 8,470 Balance at bank 3,740 202,860 202,860 No entries had been made in the head office books for cash in transit from the branch to head office at 31 December 2012, £1,000.

When the balances shown below were extracted from the branch books at 31 December 2012, no entries had been made in the books of the branch for goods in transit on that date from head office to branch, £920 (selling price).

In addition to the balances which can be deduced from the information given above, the following balances appeared in the branch books on 31 December 2012.

: £

Non-current assets 6,000 General expenses 6,070 Accounts receivable 7,040 Accounts payable (excluding head office) 1,630 Sales 51,700 Balance at bank 1,520 When inventory was taken on 31 December 2012, it was found that there was no shortage at the head office, but at the branch there were shortages amounting to £300, at selling price.

You are required to: prepare income statements

(a) for head office and

(b) for the branch, as they would have appeared if goods sent to the branch had been invoiced at cost, and a statement of financial position of the whole business as on 31 December 2012.
Head office and branch inventories are to be valued at cost.
Ignore depreciation of non-current assets.