Foreign branch and accounting
Foreign Branch
Meaning of Foreign Branches:
Foreign branches are independent branches which are operating in foreign countries.
Accounting in respect of Foreign Branches:
Accounting in respect of foreign branches is done in the books of the branch as well as in the books of the Head Office.
Accounting at Branch:
As the foreign branch is an independent branch, it keeps a complete set of books on the double entry system, prepares all the necessary accounts including the account of the Head Office, and prepares its own trial balance, Trading and Profit and Loss Account and Balance Sheet. In short, the accounting procedure adopted at a foreign branch is exactly the same as that adopted at an independent domestic branch.
Accounting at the Head Office:
The trial balance received by the Head Office from the foreign branch is in foreign currency. Therefore, before incorporating the items in the trial balance of the foreign branch, the Head Office is required to convert the various items in the trial balance into the currency of the Head Office. Thereafter, it has to incorporate the items in the Converted Branch Trial Balance in its books, prepare the Branch Trading and Profit and Loss account and Balance Sheet and Branch Account.
Rates at which the items in the trial balance of a foreign branch should be converted:
It is true that the items in the trial balance of a foreign branch should be converted into the currency of the Head Office. But the question is at what rates the various items in the trial balance of a foreign branch should be converted. The following points should be borne in mind while converting the items in the Trial Balance of a foreign branch:
1. If the rate of exchange is not subject to wide and frequent fluctuations, all the items in the trial balance (other than remittances and Head Office Account) can be converted at a fixed rate of exchange.
2. If the rate of exchange is subject to wide and frequent fluctuations,
Meaning of Foreign Branches:
Foreign branches are independent branches which are operating in foreign countries.
Accounting in respect of Foreign Branches:
Accounting in respect of foreign branches is done in the books of the branch as well as in the books of the Head Office.
Accounting at Branch:
As the foreign branch is an independent branch, it keeps a complete set of books on the double entry system, prepares all the necessary accounts including the account of the Head Office, and prepares its own trial balance, Trading and Profit and Loss Account and Balance Sheet. In short, the accounting procedure adopted at a foreign branch is exactly the same as that adopted at an independent domestic branch.
Accounting at the Head Office:
The trial balance received by the Head Office from the foreign branch is in foreign currency. Therefore, before incorporating the items in the trial balance of the foreign branch, the Head Office is required to convert the various items in the trial balance into the currency of the Head Office. Thereafter, it has to incorporate the items in the Converted Branch Trial Balance in its books, prepare the Branch Trading and Profit and Loss account and Balance Sheet and Branch Account.
Rates at which the items in the trial balance of a foreign branch should be converted:
It is true that the items in the trial balance of a foreign branch should be converted into the currency of the Head Office. But the question is at what rates the various items in the trial balance of a foreign branch should be converted. The following points should be borne in mind while converting the items in the Trial Balance of a foreign branch:
1. If the rate of exchange is not subject to wide and frequent fluctuations, all the items in the trial balance (other than remittances and Head Office Account) can be converted at a fixed rate of exchange.
2. If the rate of exchange is subject to wide and frequent fluctuations,