Home Office and Branch Notes

PRACTICAL ACCOUNTING 2 (SY 2017 – 2018) – HOME OFFICE AND BRANCH ACCOUNTING 1.

Reciprocal accounts: Investment in Branch Account (Home Office Books)

Home Office Account (Branch Books)

Investment in Branch xx Asset xx Asset xx Investment in Branch xx

Asset Home Office Home Office Asset

Investment in Branch xx Branch Income xx Branch Loss xx Investment in Branch xx

Income Summary xx Home Office xx Home Office xx Income Summary xx

Transfer of resources from: Home Office to Branch Branch to Home Office

xx xx xx xx

Resulting of Operation: Branch Profit Branch Loss

*The reciprocal accounts, Investment in Branch and Home Office Equity must be equal equal at any given may be caused by timing differences or errors. 2.

Shipment Accounts: Shipments TO Branch vs. Shipments FROM Home Office -recorded by the Home Office -recorded by the Branch -its balance is deducted from -this will be included in the computation total beginning inventory and of branch’s total cost of goods sold as an addition to  purchases to compute for home purchases office’s cost of goods sold *any freight costs incurred becomes part of the cost of inventory

3.

Property, Plant and Equipment Transactions:

Acquirer User Maintain Record Journal entries of Home Office

Journal entries of Branch

4.

Case 1 Home Branch Branch

Case 2 Home Branch Home

Investment in Branch Branch xx Cash xx

PPE xx Home Office xx

PPE Cash

xx xx

time. Any difference

Case 3 Branch Branch Home

Case 4 Branch Branch Branch

PPE xx Investment in Branch xx

 NO ENTRY

Investment in Branch xx Acc. Depreciation xx  NO ENTRY

Investment in Branch xx Acc. Depreciation xx Home Office xx Cash xx

PPE Cash

Depreciation Expense xx Home Office xx

Depreciation Expense xx Home Office xx

Dep. Exp xx Acc. Dep xx

xx xx

True Branch Profit:

Revenue Cost of Goods Sold Inventory, beg. Shipments from Home Office Purchases Inventory, end from shipments Inventory, end from purchases Gross Profit Expenses True Branch Profit

xx xx xx xx (xx) (xx)

xx xx (xx) xx

@Home office cost @Home office cost @cost @Home office cost @cost

OR

Branch Reported Profit Realized Profit on Overvaluation Overvaluation in Branch Inventory Allowance for overvaluation on inventory, beg.

xx xx

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PRACTICAL ACCOUNTING 2 (SY 2017 – 2018) – HOME OFFICE AND BRANCH ACCOUNTING Allowance for overvaluation on shipments from home office Allowance for overvaluation on inventory, end True Branch Profit 5.

xx (xx)

(xx) xx

Branch Inventory:

Branch Inventory from Home Office billed price Allowance for Overvaluation Branch Inventory from Home Office Branch Inventory from outside purchases Branch Inventory - Cost

xx (xx) xx xx xx

*mark-up shall be recognized as part of the profit or loss only  if the inventories are sold to an unrelated party. 6.

Inter-branch Transactions: 

Treated as if a transaction between the Branch and Home Office.



Excess cost incurred in inter-branch transactions is treated as expense of the Home Office. --END--

STRAIGHT PROBLEMS: Problem I: The Dagupan City branch of Andy Enterprises, Manila was billed for merchandise shipments from home office at cost plus 25% in 2015 and cost plus 20% in 2016. Other pertinent data for 2016: Dagupan Branc Home Office Sales P63,000 P212,000 Inventory, beginning 8,900 at billed price 23,000 at cost Purchases 164,000 Inventory transfers 50,400 at billed price 42,000 at cost Inventory, end 11,700 at billed price 28,500 at cost Expenses 20,300 76,400 1. 2.

What will be the combined cost of sales of Dagupan branch and Andy’s home office that must be shown in the combined income statement? What will be the combined net income of Dagupan branch and Andy’s home office?

Problem II: The following information came from the books and records of Romartin Corporation and its branch. The balances are as of December 31,2016, the fourth year of the corporation’s existence. Home Office Dr. (Cr.) Sales Shipments to branch Shipments from home office Purchases Expenses Inventory, January 1, 2016 Unrealized profit in branch inventory

Branch Dr. (Cr.) P(320,000)

P(100,000) 140,000 50,000 80,000 37,000 (50,000)

There are no shipments in transit between the home office and the branch. Both shipments 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 form vendors for a total of P30,000. Required: Determine the following: 1. Beginning inventory acquired from outsiders 2. Correct cost of beginning inventory 3. Realized profit from inventory shipments 4. Correct net income of branch 5. Correct ending inventory 6. Allowance balance at the end

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