BCSVillaluz

PUP Accounting for Special Transactions Review Session

Handout no. 1 – Home Office and Branch Accounting: Special Cases

Problem A: (Reconciliation of Reciprocal Accounts)

Atlantis Co. operates a branch in Batangas. At close of business on December 31, 2021, Batangas branch account in the home office
books showed a debit balance of P224,800. The interoffice accounts were in agreement at the beginning of the year. For purposes of
reconciling the interoffice accounts, the following facts were ascertained:

a. The branch writes off uncollectible accounts of P9,700. The allowance for doubtful accounts is maintained in the books of the
home office. The home office is not yet notified about the write off.

b. The home office inadvertently recorded a remittance for P12,000 from its Batanes branch as a remittance from its Batangas
branch.

c. Machinery and equipment costing the home office P28,000 was sent to Batangas branch. The home office will maintain the
records of the asset used by the branch. The branch credited its reciprocal account.

d. The home office charged the branch for freight amounting to P6,300. It should have been charged to its customer. The branch
erroneously recorded the debit memo from the home office.

e. The home office inadvertently recorded a Batangas branch remittance of P18,000, as collection from its customers on account.

f. On December 27, 2021, the home office sent a check for P20,000 to its Batangas branch to settle an account. The home office
erroneously recorded the transaction as payment for the acquisition of equipment.

g. On December 28, 2021, the branch returned P7,000 of excess merchandise to the home office. The merchandise was received
by the home office on December 30, 2021 and credited Bataan branch current.

h. The home office allocated advertising and rent expense totaling P10,000 to Batangas branch. The home office charged the said
expense to Bulacan branch by mistake, Batangas branch had entered the allocation twice at year-end.

i. A home office customer remitted P14,000 to the branch, The branch inadvertently recorded this transaction on December 26,
2021 as collection from its own customer. The home office made no entry during the year.

j. Inventory costing P45,000 was sent to the branch by the home office on December 12, 2021. The branch recorded the
transaction as a debit to furniture and fixtures on the same year.

1. What is the adjusted balance of the Branch Current – Batangas in the books of the Home Office on December 31,
2021?
2. What is the unadjusted balance of the home office current account in the books of the Batangas branch on
December 31, 2021?

Branch Current - Batangas Home Office Current

Unadjusted balances 224,800 270,100 No. 2
a (9,700)
b 12,000
c (28,000)
d (6,300) (6,300)
e (18,000)
f 20,000
g (7,000)
h 10,000 (10,000)
i 14,000 14,000
j
Adjusted balances 239,800 239,800
No. 1

____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Auditing (AUD) Page 1 of 3
 BCSVillaluz
Adjusting entries:
a Allowance for doubtful accounts 9,700.00
(HO books)
Branch Current 9,700.00

b Branch Current - Batangas 12,000.00

(HO books)
Branch Current - Bataan 12,000.00

c Home Office Current 18,000.00

(Batangas Branch books)
Machinery and Equipment 18,000.00

d Accounts receivable 6,300.00

(HO books)
Branch Current - Batangas 6,300.00

Home Office Current 6,300.00

(Batangas Branch books)
Freight in 6,300.00

e Accounts receivable 18,000.00

(HO books)
Branch Current - Batangas 18,000.00

f Branch Current - Batangas 20,000.00

(HO books)
Accounts payable 20,000.00

g Branch Current - Bataan 7,000.00

(HO books)
Branch Current - Batangas 7,000.00

h Branch Current - Batangas 10,000.00

(HO books)
Branch Current - Bulacan 10,000.00

Home Office Current 10,000.00

(Batangas Branch books)
Expense 10,000.00

i Accounts receivable 14,000.00

(Batangas Branch books)
Home Office Current 14,000.00

Branch Current - Batangas 14,000.00

(HO books)
Accounts receivable 14,000.00

j No entry.

Problem B: (Merchandise shipments at billed price)

Financial data for Biryani Company of Manila and its Surigao branch for 2020 follow:
Manila Office Surigao branch
Sales P1,060,000 P315,000
Inventory, January 1 115,000 44,500
Purchases from outsiders 820,000 60,000
Shipments to Surigao branch 210,000
Shipments from Manila office 252,000
Inventory, December 31 142,500 58,500
Operating expenses 382,000 40,000

Records show that the Surigao branch was billed for merchandise shipments during 2019 at 25% above cost. 40% of the branch’s 2019
ending inventory came from outsiders while 70% of the branch’s 2020 ending inventory came from home office. Biryani Company
accounts for its inventories using FIFO.

Based on the above, determine the following:

1. Unadjusted Allowance for overvaluation on December 31, 2020.
____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Auditing (AUD) Page 2 of 3
 BCSVillaluz
2. Branch cost of goods sold for the year ended December 31, 2020.
3. Branch cost of goods sold for 2020 per GAAP
4. Adjusted Allowance for overvaluation on December 31, 2020.
5. Branch inventory as of December 31, 2020.
6. Branch inventory as of December 31, 2020 insofar the home office is concerned.
7. Combined inventory as of December 31, 2020.
8. Combined cost of goods sold for the year 2020.
9. Branch net income (loss) for the year ended December 31, 2020.
10. True branch net income (loss) for 2020.
11. Overvaluation in branch cost of goods sold or undervaluation in branch net income.
12. Amount of profit (loss) that will be reported in the December 31, 2020 combined income statement of Biryani
Company.

Problem C: (Interbranch transactions)

The following partial transactions took place between the home office and its two branches, Iloilo branch and Naga branch:
a. Upon the instruction of the home office, Naga branch effected a fund transfer of P25,000 to Iloilo Branch.

b. Iloilo Branch collected a Naga Branch’s accounts receivable of P35,000 less 2% discount.

c. Naga Branch paid P250,000 representing the traveling expenses of Ms. Karen Reyes, a senior vice-president, when the latter
attended the regional conference in Canada. Of the amount paid, 60% was charged to the home office, 25% to Iloilo Branch
and the balance to Naga branch.

d. Home office shipped merchandise costing P200,000 to Naga branch. Freight of P3,000 was paid by the home office. It is the
policy of the company to bill its branches at 25% above cost.

e. Upon the instruction of the home office, Naga reshipped the above merchandise to Iloilo Branch. Freight of P1,500 was paid by
Iloilo Branch. Had the goods been shipped directly to Iloilo Branch, the freight would have been only P4,200.

1. How much is the excess freight to be recorded in the books of the home office?
2. How much is the excess freight to be recorded in the books of the Iloilo branch?
3. What is the balance of the Investment in Naga Branch account in the home office books?
4. What is the balance of the home office account in the books of Iloilo Branch?

HO books Iloilo branch Naga branch

a Branch Current - Iloilo 25,000 Cash 25,000 HO Current 25,000
Branch Current - Naga 25,000 HO Current 25,000 Cash 25,000

b Branch Current - Iloilo 34,300 Cash 34,300 HO 34,300

Branch Current - Naga 34,300 HO 34,300 Sales discount 700
Accounts receivable 35,000

c Travelling expense 150,000 Travelling expense 62,500 Travelling expense 37,500

Branch Current - Iloilo 62,500 HO 62,500 HO 212,500
Branch Current - Naga 212,500 Cash 250,000

d Branch Current - Naga 253,000 Shipments from HO 250,000

Shipments to branch - Naga 200,000 Freight in 3,000
Allowance for overvaluation 50,000 HO 253,000
Cash 3,000

e Branch Current - Iloilo 252,700 Shipments from HO 250,000 HO 253,000

Loss on interbranch transfers 300 Freight In 4,200 Shipments from HO 250,000
Branch Current - Naga 253,000 Cash 1,500 Freight in 3,000
HO 252,700

--END--

____________________________________________________________________________________________________________
Brian Christian S. Villaluz, CPA
CPA Reviewer in:
Advanced Financial Accounting & Reporting (AFAR)
Financial Accounting & Reporting (FAR)
Auditing (AUD) Page 3 of 3