Allowance for Overvaluation

The account allowance for overvaluation of inventories is used when the home
office ships inventories are used when the home office ships inventories to the
branch at billed price. The difference between the billed price. The difference
between the billed price and the cost is the allowance for overvaluation.
Furthermore, this account is credited together with Shipments to Branch
whenever the home office sends off inventories. Moreover, this account is
deemed realized unless all the shipments from branch account are sold.

If the branch and home office account balances are

not in agreement with each other
If the branch and home office account balances are not in agreement with each
other, it may be because of errors in recording the amount of the transactions. It
may be that the branch or home office mistakenly debited or credited certain
account titles or it may be that the numbers are incorrectly stated. Thus, adjusting
entries should be prepared in order to correct and adjust the amounts. Another
reason is that there may be transactions that are recorded by one but not
recorded by the other, Because of this, it may cause understatement or
overstatement of either the branch or home office account. As an effect,
reconciliation is necessary in order to balance both accounts.