Home Office and Branch Accounting

RECIPROCAL NON RECIPROCAL

Transactions between the H.O. and the Branch Transactions with third parties

Reciprocal accounts

H.O. Books Branch Books

Branch Current ≠ Home Office Current

1. Timing
Investment Account 2. Errors Capital Account
3. Branch income
Debited everytime Credited everytime
the HO transfers the branch receives CASH xx
assets to the branch assets to the H.O. AR xx

Exp xx
Pro forma entries: Cash xx

H.O. Books Branch Books H.O. Books Branch Books

Branch Current xx Cash xx BC 120,000 SFHO 120,000

Cash xx HOC xx STB 100,000 HOC 120,000
UP 20,000
BC @ BP xx SFHO xx AR 100,800
STB @ Cost xx HOC xx Sales 100,800
AFO/UP xx
Expenses 5,000
Cash xx HOC xx Cash 5,000
BC xx AR xx
Sales 100,800
BC xx Expense xx SFHO - End 36,000
Cash xx HOC xx SFHO- Beg. 120,000
Expenses 5,000
BC xx IES xx I/ES 11,800
Branch Income xx HOC xx
BC 11,800 I/ES 11,800
AFO/UP xx Branch Income 11,800 HOC 11,800
Branch Income xx
UP 14,000
Branch Income 14,000 EI @ Billed Price 36,000
EI @ cost 30,000
Unrealized Profit
6,000 End Beg -
14,000 Realized Profit Current Shipments 20,000
Return shipments
Problem 1 H.O. Books Br. Books
Branch Home Office
Current Current
Yolanda Garment Company operates a branch in Tacloban City. At the end of the year, the Unadj. 150,000 117,420
branch account in the books of the home office at Manila, shows a balance of P150,000. The
following information are ascertained: (1) 37,500
(2) 10,500
(3) - 4,500
1. The home office has billed the branch the amount of P37,500, for the merchandise, which was (4) - 1,080
in transit on December 31. (5) 25,000 25,000
Adj. 179,920 179,920
2. A home office accounts receivable for P10,500 was collected by the branch. Said collection was Entries:
not reported to the home office by the branch. (1) SFHO 37,500
HOC 37,500
3. Supplies of P4,500 was returned by the branch to the home office but the home office has not (2) BC 10,500
yet reflected in its records the receipt of the supplies. AR 10,500
(3) Supplies 4,500
4. The branch made profit of P10,100 for the month of December but the home office BC 4,500
erroneously recorded it as P11,180. (4) Branch Income 1,080
BC 1,080
5. The branch has not received the cash in the amount of P25,000 sent by home office on (5) Cash 25,000
December 31. This was charged to General Expense account. HOC 25,000

All transactions are presumed to have been properly recorded. BC 25,000

What is the balance of the Home Office account on the books of the branch as of December 31, G.E. 25,000
before adjustments?

G.E. 25,000
Cash 25,000
Problem 2
BC 25,000
Cash 25,000
The Maynilad Corporation decided to open a branch in Cebu. Shipments of merchandise to the
branch totaled P540,000 which included a 20% mark-up on cost. All accounting records are to be
kept at the home office.
1. Ending Inventory at cost
The branch submitted the following report summarizing its operations for the period ended
December 31, 2020: 20% from outside parties @ cost 60,000
300,000
80% from HO @billed price 240,000 200,000
Sales on account 740,000 260,000
Sales on cash basis 220,000 2. True net income
Collections of account 600,000
Expenses paid 380,000 Sales 960,000 Sales 960,000
Expenses unpaid 120,000 Cost of sales: Cost of sales:
Purchase of merchandise for cash 260,000 BI - BI -
Inventory on Hand, December 31; 80% from H.O. 300,000 Pur. 260,000 Pur. 260,000
Remittance to home office 550,000 SFHO 540,000 SFHO 450,000
TGAFS 800,000 TGAFS 710,000
1. How much is the ending inventory at cost? Less: EI 300,000 500,000 Less: EI 260,000 450,000
Gross Profit 460,000 Gross Profit 510,000
2. The branch operations insofar as the home office is concerned resulted in a net income of?
OPEX 500,000 OPEX 500,000
Unrealized Profit Net Income - Branch - 40,000 True Net Income 10,000
40,000 End Beg - Add: Adj. - Realized Profit 50,000
50,000 Realized Current 90,000 True Net Income 10,000
Problem 3 Return

SFHO @ BP 360,000 Unrealized Profit

The following information came from the books and records of Philam Corporation and its STB @ Cost 240,000 18,000 End Beg 16,000
branch. The balances are as of December 31, 2020, the fourth year of the corporation's existence. UP - Current 120,000 118,000 Realized Current 120,000
Home office Branch Return
Dr.(Cr.) Dr. (Cr.) Mark up rate 50% 136,000
Sales (P850,000)
Shipments to branch (P240,000) 1. Beginning Inventory from outsiders
Shipments from home office 360,000
Purchases 180,000 Outsiders 24,000 @ cost
72,000
Expenses 160,000 SFHO 48,000 @BP 32,000 @ cost
Inventory, January 1, 2020 72,000
Unrealized profit in branch inventory (136,000) 2. Correct net income
 Sales 850,000 Sales 850,000
There are no shipments in transit between the home office and the branch. Both Shipments Cost of sales: Cost of sales:
accounts are properly recorded. The closing inventory at billed prices includes merchandise
acquired from the home office in the amount of P54,000 and P30,000 acquired from vendors for a BI 72,000 BI 56,000
total of P84,000. Pur. 180,000 Pur. 180,000
36,000 30,000 66,000 EI@cost SFHO 360,000 SFHO 240,000
TGAFS 612,000 TGAFS 476,000
1. How much of the beginning inventory of the branch was acquired from outsiders? Less: EI 84,000 528,000 Less: EI 66,000 410,000
2. How much is the correct net income of the branch? Gross Profit 322,000 Gross Profit 440,000
OPEX 160,000 OPEX 160,000
3. What is the entry to adjust the net income of the branch on the home office books? Net Income - Branch 162,000 True Net Income 280,000
UP 118,000 Add: Adj. - Realized Profit 118,000
Branch Income 118,000 True Net Income 280,000
Problem 4

Unrealized Profit
24,000 End Beg. 20,000
The income statement submitted by the San Carlos City branch to the Home Office for the month
of December, 2020 is shown below. After reflecting the necessary adjustments, the true net 96,000 Realized Current 100,000
income of the branch was ascertained to be P156,000. Returns

Sales ₱ 600,000
Cost of sales:
Inventory, December 1 ₱ 80,000 Inventory, Dec. 1 -HO 70,000
Shipments from home office 350,000 SFHO 350,000
Local purchases 30,000 TGAFS 420,000
Total available for sale ₱ 460,000 EI -HO 84,000 336,000
Inventory, December 31 100,000 360,000 Realized Profit 96,000
Gross margin ₱ 240,000 True Cost of Sales 240,000
Operating expenses 180,000
Net income ₱ 60,000 Mark up rate based on Cost 40%

The branch inventories were:

Dec. 1, 2020 Dec. 31, 2020
Merchandise from home office ₱ 70,000 ₱ 84,000
Local purchases 10,000 16,000
Total ₱ 80,000 ₱ 100,000

1. The billing price based on cost imposed by the home office to the branch is 140%

2. The balance of allowance for overvaluation of branch on December 31, 2020 after adjustment

Problem 5

1. Beginning Inventory from outside vendors:

The following information came from the books and records of Philip Corporation and its branch.
The balances are as of December 31, 2020, the fourth year of the corporation's existence. From outside 6,000 @cost
36,000
Home office Branch From HO 30,000 @BP 20,000 @cost
Dr. (Cr.) Dr. (Cr.)
Unrealized Profit
Sales (P320,000) 7,000 End Beg. 10,000
Shipments to branch (P80,000) 43,000 Realized Current 40,000
Shipments from home office 120,000 - Return
Purchases 50,000 50,000 50,000
Expenses 80,000
Inventory, January 1, 2020 36,000
Unrealized profit in branch inventory (50,000)
Sales 320,000 Sales 320,000
Cost of sales: Cost of sales:
There are no shipments in transit between the home office and the branch. Both shipments BI 36,000 BI 26,000
accounts are properly recorded. The closing inventory at billed prices includes merchandise
acquired from the home office in the amount of P21,000 and P9,000 acquired from vendors for a Pur. 50,000 Pur. 50,000
total of P30,000. SFHO 120,000 SFHO 80,000
TGAFS 206,000 TGAFS 156,000
Required: Determine the following: Less: EI 30,000 176,000 Less: EI 23,000 133,000
Gross Profit 144,000 Gross Profit 187,000
1. Beginning inventory acquired from outsiders. 6,000 OPEX 80,000 OPEX 80,000
2. Correct cost of beginning inventory. 26,000 Net Income - Branch 64,000 True Net Income 107,000
3. Realized profit from inventory shipments. 43,000 Add: Adj. - Realized Profit 43,000
4. Correct net income of branch. 107,000 True Net Income 107,000
5. Correct ending inventory. 23,000
6. Allowance balance at the end. 7,000

Problem 6

1. EI of Tecware Products Corporation @ cost

Tecware Products Corporation has two branches, Baguio and Davao, to which merchandise is
billed at 20% above cost. Partial trial balance accounts of the three entities at December 31, 2020 HO 700,000
are summarized as follows: Baguio Branch 175,000
Davao Branch 225,000
Home office Baguio Branch Davao Branch EI @ Cost 1,100,000
Inventory ₱ 800,000 ₱ 180,000 ₱ 240,000
Baguio branch 450,000 Shipments to Davao 400,000
Davao branch 420,000 Multiply by: 120% x 120%
Shipments from home office 600,000 360,000 Debit to BC 480,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000 Shipments to DAVAO at BP 480,000 Total ending inventory - DAVAO @ BP
Home office 450,000 300,000 Shipments recorde by DAVAO 360,000 150,000
Loading - Baguio branch 130,000 Shipments in transit 120,000 120,000
Loading - Davao branch 120,000 270,000
Sales 1,950,000 900,000 750,000 HO DAVAO BRANCH
Shipments to Baguio branch 500,000
Shipments to Davao branch 400,000 BC 480,000 SFHO 360,000
STB - DAVAO 400,000 HOC 360,000
Physical inventories on hand at December 31, 2020 were as follows: UP 80,000
Home office ₱ 700,000 at cost
Baguio branch 210,000 at billed prices 2. Combined Net Income
Davao branch 150,000 at billed prices HOME OFFICE BAGUIO & DAVAO
Sales 1,950,000 Sales 1,650,000
1. The ending inventory of Tecware Products Corporation must be Cost of sales: Cost of sales:
2. The combined net income of home office and branches for 2020 must be BI 800,000 BI @ cost 350,000
3. Correct net income of branches for 2020 must be Pur. 1,600,000 Pur. -
TGAFS&FS 2,400,000 SFHO @ cost 900,000
Less: STB 900,000 TGAFS 1,250,000
Less: EI 700,000 800,000 Less: EI @ cost 400,000 850,000
Gross Profit 1,150,000 Gross Profit 800,000
OPEX 900,000 OPEX 450,000
Net Income 250,000 True Net Income 350,000

COMBINED NET INCOME 600,000

3. True Net Income of the Branches 350,000

Problem 7
Branch 1 Branch 5 Home Office

SFHO 160,000 Branch Current - Br. 1

The M Company maintains branches that market the products that it produces. Merchandise is HOC 160,000 STB - Br. 1
billed to the branches at 25% above costs, with the branches paying freight charges from the
home office to the branch. On November 15, Branch No. 1 ships part of its stock to Branch No. 5 Unrealized Profit
upon authorization by the home office. Originally, Branch No. 1 had been billed for this Freight 35,000
merchandise at P160,000 and had paid freight charges of P35,000 on the shipment from the Cash 35,000
home office. Branch No. 5, upon receiving the merchandise, pays freight charges of P25,000 on
the shipment from Branch No. 1. If the shipment had been made from the home office directly to
Branch No. 5, the freight cost to Branch No. 5 would have been P40,000. HOC 195,000 SFHO 160,000 BC - Br. 5
SFHO 160,000 HOC 160,000 Freight
Required: Prepare the journal entries necessary to record the above information on the books of Freight 35,000 BC - Br. 1
Branch No. 1, Branch No. 5 and Home Office. Freight 40,000
Cash 25,000
Inter Branch Transfers: HOC 15,000

1. Transferring Branch is as if returning the asset to the H.O.

2. Recipient is as if receiving the asset from the H.O.
3. HO makes a clearing entry by debiting the receiving branch and crediting the transferring branch.
4. Excess freight is charged to H.O.
 Home Office

Branch Current - Br. 1 160,000

STB - Br. 1 128,000
Unrealized Profit 32,000

175,000
20,000
BC - Br. 1 195,000