Initial Investment

1. Home Office establishes a branch for an initial investment of P1,000,000 in cash.

Branch
Home Office Books Books

Property carried in branch books-Branch Acquisition

2. Branch acquires equipment for 400,000 to be carried in Branch books.

Branch
Home Office Books Books

*Recording of depreciation expense

Property carried in home office books-Branch Acquisition

3. Branch acquires equipment for P200,000 to be carried in the home office books.

Branch
Home Office Books Books

*Recording of depreciation expense

4. Property carried in branch books-Home Office Acquisition

Home office acquires furniture for 50,000 to be carried in branch books.

Branch
Home Office Books Books

*Recording of depreciation expense

5. Property carried in home office books-Home Office Acquisition

Home office acquires furniture for 30,000 to be carried in home office books, but possession
and use of the equipment is transferred to the branch.
 Branch
Home Office Books Books

*Recording of depreciation expense

6. Transfer of inventories-freight paid by home office.

Home office transfers inventory worth P150,000 to the branch. Freight paid by the home office
is P10,000.

Branch
Home Office Books Books

7. Transfer of inventories-freight paid by home office.

Home office transfers inventory worth P80,000 to the branch. Freight paid by the home office is
P6,000.

Branch
Home Office Books Books

8. Purchase of inventories-acquisition from outside parties.

Branch purchases inventory worth 40,000 on account from outside party. Freight paid by the branch is
2,000.

Home Office Books Branch Books

9. Revenue

Branch makes total sales of P500,000 on account.

Home Office Books Branch Books

10.
Collection

Branch collects 400,000 from accounts receivable.

Home Office Books Branch Books

11. Remittance to home office.

Branch remits 300,000 cash collections to home office.

Home Office Books Branch Books

Allocation of
expenses
12. Branch incurs various operating expenses amounting to P100,000, one-fourth of which remains unpaid.

Home Office Books Branch Books

13. Home office allocates 10,000 utilities expense and 4,000 general overhead costs to the branch.
Home Office Books Branch Books

Combined Financial Statements

ABC Co.
Trial balance
December
31,20x1

Home Office Branch

Dr.(Cr.) Dr.(Cr.)
Cash 1,100,000 417,000
Accounts Receivable 180,000 100,000

Inventory, beg. 650,000

Shipments from home office 230000

Purchases 72,000 40000

Freight-in 22,000 18000

Shipments to branch (230,000)

Investment in branch 827,000

Equipment 720,000 400000

Acc. Depreciation-equipment (72,000) (40000)

Furniture 90,000 50000

Acc. Depreciation-furniture (9,000) (5000)

Accounts Payable (72,000) (40000)

Accrued Expenses (45,000) (25000)

Share Capital (2,000,000)

Share Premium (500,000)

Retained earnings-beg (206,200)

Home Office (827000)

Sales (900,000) (500000)

Depreciation Expense 168,000 68000

Utilities Expense 18,000 10000

General Overhead Expense 7,200 4000

Various Operating Expenses 180,000 100000

Totals - -

The home office and the branch have ending inventories of 270,000 and 150,000, respectively.
Requirement:
a. Statement of Financial Position; and
b. Statement of profit or loss
ABC Co.
Trial balance
December
31,20x1

Eliminatio
Home Office Branch n Combined
Dr.(Cr.) Dr.(Cr.) Dr.(Cr.) Dr.(Cr.)
Cash 1,100,000 417,000 1,517,000

Accounts Receivable 180,000 100,000 280,000

Inventory, beg. 650,000 650,000

Shipments from home office 230000 (230000) -

Purchases 72,000 40000 112,000

Freight-in 22,000 18000 40,000

Shipments to branch (230,000) 230000 -

Investment in branch 827,000 (827000) -

Equipment 720,000 400000 1,120,000

Acc. Depreciation-equipment (72,000) (40000) (112,000)

Furnitur
e 90,000 50000 140,000

Acc. Depreciation-furniture (9,000) (5000) (14,000)

Accounts Payable (72,000) (40000) (112,000)

Accrued Expenses (45,000) (25000) (70,000)

(2,000,000
Share Capital (2,000,000) )

Share Premium (500,000) (500,000)

Retained earnings-beg (206,200) (206,200)

(827000
Home Office ) 827000 -
(500000 (1,400,000
Sales (900,000) ) )
Depreciation Expense 168,000 68000 236,000

Utilities Expense 18,000 10000 28,000

General Overhead Expense 7,200 4000 11,200

Various Operating Expenses 180,000 100000 280,000

Totals - - -

Elimination Entries:
a. Home Office 827,000
Investment In Branch 827,000
Shipment to
b. branch 230,000
Shipments from home office 230,000
ABC Co.
Statement of profit or loss
For the year ended December 31, 20x1

1400000
Sales
COGS:
Inventory,beg. 650000
Purchases 112000
Freight-in 40000
Total Goods Available for Sale 802000
Inventory,end (420000) (382000)
Gross Profit 1018000
Depreciation Expense (236000)
Utilities Expense (28000)
General Overhead Costs (11200)
Various operating expenses (280000)
Profit for the Period 462800

Individual Statement of Profit or Loss of the Home Office

Sales 900000
COGS:
Inventory,beg. 650000
Purchases 72000
Shipments to Branch 22000
Freight-in (230000)
Total Goods Available for Sale 514000
Inventory,end (270000) (244000)
Gross Profit 656000
Depreciation Expense (168000)
Utilities Expense (18000)
General Overhead Costs (7200)
Various operating expenses (180000)
Profit for the Period 282800

Entries:

ABC Co.
Statement of Financial Position
As of December 31, 20x1

ASSETS
CASH 1517000
ACCOUNTS RECEIVABLE 280000
INVENTORY 420000
EQUIPMENT 1120000
ACC. DEP'N-EQUIPMENT (112000)
FURNITURE 140000
ACC. DEP'N-FURNITURE (14000)
TOTAL ASSETS 3351000

LIABILITIES AND EQUITY

ACCOUNTS PAYABLE 112000
ACCRUED EXPENSES 70000
SHARE CAPITAL 2000000
SHARE PREMIUM 500000
RETAINED EARNINGS 669000
TOTAL LIABILITIES AND
EQUITY 3351000