PSBA - MANILA

ACCOUNTING 15 V R E
HOME OFFICE and BRANCH ACCOUNTING
BRANCH is an organization that sells goods out of a stock that it maintains and that possesses
the authority to engage in transactions as an independent business unit .
The branch is subject to control by the home office. It may purchase merchandise from outsi-
ders to satisfy certain local needs for goods not available from the affiliated unit. Generally, the
the branch accounting system is maintained at the branch. It prepares its own periodic financial
statements for submission to the home office. An account called HOME OFFICE CURRENT
takes the customary capital account. The home office, in turn, keeps a reciprocal account, called
BRANCH CURRENT or INVESTMENT IN BRANCH account.

The balances in the INVESTMENT IN BRANCH account in the home office books and HOME
OFFICE CURRENT account in the branch books may not show identical balances at any one time,
because of certain interoffice data that have been recorded by one office but not by the other. At
the end of the fiscal period, appropriate adjusting entries are made to bring the two accounts into
agreement.

ITEMS TO BE CONSIDERED IN THE PREPARATION OF RECONCILIATION STATEMENT

1. Transactions have been recorded by Branch but not by Home Office.
2. Transactions have been recorded by Home Office but not by branch.
3. Errors in recording have occured in one or both books.
4. Transactions have not yet been recorded on either set of books.

PROFORMA ENTRIES:
HOME OFFICE BOOK
Cash and merchandise transferred to the branch.
Investment in branch…..................xx
Cash…...................................................xx
Shipment to branch................................xx
BRANCH BOOK
Cash and merchandise received from home office:
Cash….................................................xx
Shipments from home office…............xx
Home office ….........................................xx

PPE purchased branch PPE - PPE is maintained in home office books.

PPE-Branch…............................xx no entry
Accounts payable…..........................xx

Branch purchased ppe for its use - PPE is maintained in home office books.
PPE…..........................................xx Home office ….........................................xx
Investment in branch….........................xx Accounts payable…......................................xx

PPE transferred to branch - PPE is maintained in branch books.

Investment in branch…..................xx PPE….......................................................xx
PPE…...................................................xx Home office …..............................................xx

Branch purchased ppe for its use - PPE is maintained in branch books.
no entry PPE….......................................................xx
Accounts payable….........................................xx

Home office allocated expenses to branch:

Investment in branch…..................xx Expenses….................................................xx
Expenses…...........................................xx Home office …..............................................xx

Home office paid branch expenses:

Investment in branch…..................xx Expenses….................................................xx
Cash…...................................................xx Home office …..............................................xx

Accounts receivable of home office collected by branch:

Investment in branch…..................xx Cash…........................................................xx
Accounts receivable…............................xx Home office …..............................................xx

Accounts receivable of branch collected by home office:

Cash…............................................xx Home office ….........................................xx
Investment in branch….........................xx Accounts receivable…....................................xx

Branch profit reported:

Investment in branch…..................xx Income summary…...................................xx
Income summary…..............................xx Home office….................................................xx

PROBLEM 1
During the first part of 2021, VINES Company begins a branch operation in Makati City. The
following events occur thereafter:
1. Equipment costing P100,000 is immediately sent to this site. PPE is to be carried in the
branch books.
home office book branch book
Investment in branch 100k Equipment 100k
Equipment 100k Home Office 100k

2. Inventory costing P80,000 as well as cash of P20,000 is transferred by the home office to
the branch.
Investment in branch 100k Cash 20k
Inventory/shipments to branc 80k Shipments from h.o. 80k
cash 20k Home office 100k

3. The branch buys inventory from an outside party at a cost of P60,000. A periodic
inventory system is in use.
no entry Purchases 60k
Accounts payable 60k

4. The home office pays P 20,000 rent on a building for the next eight months. The branch is
notified of this payment.
Investment in branch 20k Rent expense 20k
Cash 20k Home office 20k

5. Sales of P180,000 are made. Cash of P80,000 is collected immediately. The rest of the
sales are made on account.
no entry cash 80k
accounts receivable 100k
Sales 180k

6. The branch pays P16,000 for advertising and another P10,000 for salaries.
no entry advertising expense 16k investment is debited for: home office is credited for:
Salaries expense 10k asset transferred to branch asset received from branch
Cash 26k allocated expenses allocated expenses
exp paid directly its exp paid by h.o.
7. The branch transfers P20,000 in cash to the home office. The money is received and net income of branch net income
recorded. investment is credited for: home office is debited for:
Cash 20k Home office 20k remittance remittance;
Investment in Branch 20k Cash 20k net loss of branch net loss

8. A P6,000 receivable is collected by the home office for the branch. The branch is notified
of this collection.
Cash 6k Home office 6k
Investment in branch 6k Accounts receivable 6k

Required: Prepare the entries on the books of the home office and the branch.

PROBLEM 2
On December 31, 2021, the Investment in Branch in the Home Office books shows a balance
of P250,000. The following facts are ascertained:
1. Merchandise billed at P62,500 is in transit on December 31 from the home office to the
branch.
2. The branch collected a home office accounts receivable for P17,500. The branch did not
notify the home office of such collection.
3. On December 30, the home office sent cash of P37,500 to the branch, but this was charged
to general expense; the branch has not received the cash as of 12/31.
4. Branch profit for December was recorded by the home office at P12,000 instead of P10,2 1800 overstatement
5. The branch returned supplies of P7,500. to the home office but the home office has not yet
recorded the receipt of the supplies.
Assume all other transactions have been properly recorded.
Required: 1. Unadjusted balance of the Home Office Current account on the branch books
on December 31, 2021.
2. Adjusted Balances
Investment in Home
branch Office
Unadjusted balance 250,000 ? answer is 195,700
shipments in transit:
Investment 62500 shipments fr ho 62500
Shipments to branch 62500 62,500 home office 62500
AR of home office collected by branch:
Cash 17500
Home Office 17500 17,500

General exp 37500

Cash 37500

adj entry
Investment in branch 37500 37,500 37,500
General exp 37500

error in recording branch profit

Investment 12k 10.2 - 1,800
Income summary

home office 7500 -7500

Supplies 7500
Adjusted balances 295,700 295,700 should be the same, then work back

PROBLEM 3
The following were found in your examination of the interplant accounts between the Home
Office and the Baguio Branch:
A. Transfer of property & equipment from Home Office amounting to P269,800 was not
booked by the branch.
B. P50,000 covering marketing expense of another branch was charged by Home Office to
Baguio.
C. Baguio recorded a debit note on inventory transfers from Home Office of P375,000 twice.
D. Home Office recorded cash transfer of P328,500 from Baguio branch as coming from
SUBIC Branch.
E. Baguio reversed a previous debit memo from CAVITE Branch amounting to P52,500.
Home Office decided that this charge is appropriately SUBIC Branch's cost.
F. Baguio recorded a debit memo from Home Office of P23,250 as P22,800.

Required: A. Net adjustment in the home office books related to the Investment in Branch.
B. Net adjustment in Baguio's books related to the Home Office account.
C. Before the above discrepancies were given effect, the balance in the home
office books of its Investment in Baguio Branch account was debit balance of
P829,600. What is the unadjusted balance in the BAGUIO branch books of its
Home Office Current account?
D. The adjusted balance of the reciprocal accounts

PROBLEM 4
WACKY Corporation has operated a branch in Cagayan de Oro for one year. Shipments are
billed to the branch at cost. The branch carries its own accounts receivable, makes its own
collections, and pays its own expenses. The transactions for the year are given effect to in the
trial balance below:
Cash………………………………………………………. 12,600
Home Office Current…………………………………….. 52,500
Shipments from Home Office…………………………… 203,040
Accounts Receivable……………………………………. 38,400
Expenses………………………………………………….. 20,460
Sales………………………………………………………… 222,000
274,500 274,500
The branch reported an inventory on December 31, 2020 of P27,540.
Required: 1. Profit or loss of Cagayan de Oro Branch
2. Balance of Investment in Branch on January 1, 2021
3. Balance of Shipments to Branch on January 1, 2021

Sales 222,000 home office 52,500

Cost of sales profit 26,040
beg invty - adj bal of home offic 78,540 is also the balance of investmet
shipments 203,040 on dec. 31, 2020 (2)
purchases carried forward to 2021
tgas 203,040
ending invty 27,540 (175,500) 3. shipments is zero on jan. 1, 2021
Gross profit 46,500
Expenses (20,460)
Net income 26,040 (1)

PROBLEM 5
On December 31, 2021, the following data are in the records of the C2 Branch of the D2
Company:
Petty cash 94,500
Accounts receivable, Dec. 31, 2020 85,200
Merchandise inventory, Dec. 31, 2020 75,500
Accounts receivable, Dec. 31, 2021 88,800
Merchandise inventory, Dec. 31, 2021 81,000
Sales 272,700
Sales returns 4,800
Accounts receivable written off 2,000
Shipment from home office 220,600
Expenses (paid by home office) 22,500
Required: If all cash collections in 2021 were remitted to home office, how much is the total
remittance?

COMPUTATION:
Accounts receivable
beg 85,200 collections ? is 262,300 answer
cr sales 272,700 sales ret & allow 4,800
recovery - sales discount
total debit 357,900 accts written off 2,000
total credit 269,100 workback

bal, end 88,800

PROBLEM 6
Cagayan branch submitted the following data to its home office in Makati for 2021 , its first year
of operation:
Sales 4,600,000
Shipments from hpme office 3,700,000
Operating expenses 470,000
Home office 960,000
Shipments to the branch are billed at cost. The December 31 inventory of the branch was P511,000.
Required: What is the balance of the Investment in Branch account on December 31, 2021
a. P1,901,000 c. P1,900,000
b. P 941,000 d. P 960,000

BRANCH BILLING AT AN AMOUNT ABOVE COST

When home office bills the branch for merchandise at a figure other than cost, billing is
usually made at an arbitrary rate above cost or at the retail sales price. This will result to less
earnings for the branch , while the inventories reported at the billed price will exceed cost.
The difference between the billed price recorded by the branch and the cost of the goods
shipped recorded by the home office is credited to UNREALIZED INTERCOMPANY
INVENTORY PROFIT (ALLOWANCE FOR OVERVALUATION OF BRANCH INVTY).

SHIPMENT OF MERCHANDISE AT ABOVE COST:

Investment in Branch xxx at billed price
Shipments from home office xxx at cost
Allowance for overvaluation of branch inventory xxx profit

COMPUTATION OF BRANCH INVENTORY AT COST:

A. If branch inventory are all acquired from Home Office:
Branch inventory acquired from home office at billed price ……… xxx
Divided by billing percentage at cost……………………………….. xxx
Branch inventory at cost……………………………………………… xxx

B. Branch inventory includes merchandise acquired from home office:

Branch inventory acquired from home office at billed price xxx
Divided by billing percentage at cost……………………………….. xxx
Branch inventory acquired from home office at cost………………. xxx
Add: Inventory acquired from outsiders……………………………. xxx
Branch inventory at cost……………………………………………… xxx

PROBLEM 7
TOBBY Co. bills its branch for merchandise shipments at 125% of cost. As of cut off date,
December 31, 2021, the following data were available:
Merchandise from Purchases
Home office at from
billed price Outsiders Total
Merchandise, Dec. 1 300,000 120,000 420,000
Addition to stock 450,000 360,000 810,000
Merchandise, Dec. 31 420,000 150,000 570,000
The branch returned P15,000 merchandise to the home office acquired at billed price.
Required: Realized profit from Allowance for overvaluation of branch inventory

COMPUTATION
Billed Percent Over-
Price of Cost = Cost valuation
Merchandise Acquired from home office:
Merchandise Inventory, beg 300,000 /125%= 240,000 60,000 balance beginning
Add: Shipments during the period 450,000 /125%= 360,000 90,000 allowance on shipments
Total 750,000 /125%= 600,000 150,000
Less: Merchandise Inventory, end -420,000 /125%= - 336,000 - 84,000 adjusted balance of allowance
Cost of sales 330,000 264,000 66,000
Reported Correct Realized
by Cost of profit or allowance 66k
branch Sales overvaluation income summary 66k

COMPUTATION OF CORRECT BRANCH PROFIT BY HOME OFFICE:

Branch profit(Loss) as reported………………………………………………………. xxx
Add: Overvaluation of Branch inventory/Realized profit from branch inventory… xxx
Correct branch profit(Loss)………………………………………………………. xxx

PROBLEM 8
The following is the income statement of MAK Branch in Davao for the six-month period
ending June 30, 2021:
Sales 620,000
Cost of Sales:
Shipments from H.O. 550,000
Purchases 50,000
Total 600,000
Inventory, June 30
From H.O. 75,000
From outsider 10,000 85,000 515,000
Gross Profit 105,000
Expenses 85,000
Net Income 20,000

The home office ships merchandise to, and bills, the branch office at 125% of cost. The
rent of the branch office for six months, at a monthly rate of P1,000 was paid by the home office.
Required: A. Correct net income of the branch for six months.
B. Inventory on June 30, 2021 at cost

COMPUTATION:
Billed Percent Over-
Price of Cost = Cost valuation
Merchandise Acquired from home office:
Merchandise Inventory, beg
Add: Shipments during the period 550,000 /125%= 440,000 110,000
Total 550,000 440,000 110,000
Less: Merchandise Inventory, end 75,000 /125%= 60,000 15,000 adj balance of allowance
Cost of sales 475,000 380,000 95,000
Reported Correct Realized
by Cost of profit or
branch Sales overvaluation

Branch profit(Loss) as reported………………………………………………………. 20,000

Add: Overvaluation of Branch inventory/Realized profit from branch inventory… 95,000
Rent Expense (1,000 x 6) - 6,000
Correct branch profit(Loss)………………………………………………………. 109,000

PROBLEM 9
CLARK Co. bills its Poro Point Branch for merchandise at 140% of cost. At the end of
January 2021, the branch reported the following information:
Merchandise from Home
Office at billed Price
Inventory, Jan. 1 7,560
Shipments received 28,280
Inventory, Jan. 31 8,400
Required: Balance of Allowance for Overvaluation at January 31

Billed Percent Over-

Price of Cost = Cost valuation
Merchandise Acquired from home office:
Merchandise Inventory, beg
Add: Shipments during the period
Total - -
Less: Merchandise Inventory, end 8,400 /140%= 6,000 2,400 adj balance of allowance
Cost of sales 8,400 6,000
Reported Correct Realized
by Cost of profit or
branch Sales overvaluation
of COS

PROBLEM 12
STARBRITE Corp. bills its newly establish branch for merchandise at 140% of cost. At the
end of its first month, the branch reported, among other things, the following:
Merchandise from home office at billed pri 28,000
Merchandise purchased locally by branch 10,000
Inventory, Sept. 30, of which P2,000 are of local
purchases 9,000
Net sales for month 43,500
Required: 1. Branch inventory at cost
2. Gross profit of the branch as far as home office is concerned

Billed Percent Over-

Price of Cost = Cost valuation
Merchandise Acquired from home office:
Purchases 10,000 10,000
Add: Shipments during the period 28,000 20,000
Total 38,000 30,000
Less: Merchandise Inventory, end
fr home office 7,000 5,000
fr other vendors 2,000 2,000
9,000 7,000
Cost of sales 38,000 23,000
net sales 43,500
gross profit 20,500

PROBLEM 13
At the end of 2020, the branch reported an inventory of P15,625. The home office bills this
branch at 125% of cost. During 2021, the goods costing P300,000 were shipped to the branch.
The account "Allowance for Overvaluation of Branch Inventory" after adjustment, shows a
balance of P16,250 at the end of the year.
Required: 1. Inventory at January 1, 2020 at cost
2. Ending inventory at billed price
3. Allowance for overvaluation of branch inventory before adjustment

computation: Billed Percent Over-

Price of Cost = Cost valuation
Merchandise Inventory, beg 15,625 125% 12,500 3,125

Add: Shipments during the period 375,000 300,000 75,000

Total 375,000 300,000 78,125 allowance before adjustment
Less: Merchandise Inventory, end 81,250 65,000 16,250
Cost of sales 456,250 365,000 61,875

PROBLEM 14
DRAGON Company established a branch in Tagaytay to distribute part of the goods purchased
by the home office. The home office prices inventory shipped to the branch at 20% above cost.
The following account balances were taken from the ledger maintained by the home office and
the branch:

DRAGON BRANCH
Sales…………………………………………………… 1,800,000 630,000
Beginning inventory…………………………………… 360,000 180,000 bi 510000
Purchases……………………………………………… 1,500,000 p 1500000
Shipments to branch………………………………….. 390,000 s 0
Shipments from home office….……………………….. 468,000 ei -414000
Operating expenses……………………………………. 516,000 108,000 1596000 consolidated cos
Ending inventory………………………………………… 294,000 144,000
All of the branch inventory is acquired from the home office. On the basis of these account
balances, compute for the following:
1. Understatement of branch net income 84000
2. Cost of sales to be presented in the combined income statement