HOME OFFICE AND BRANCHES

BRANCH INVENTORY FROM HO @ BILLED PRICE

Billed Cost Mark-Up

Price based on
cost
BEG. INVTY from HO xxx xxx xxx
+ SFHO xxx xxx xxx
TGAS xxx xxx xxx Unadjusted AFOVOBI
- ENDING INVTY from HO (xxx) (xxx) (xxx) Adjusted AFOVOBI
COGS xxx xxx xxx Adjustment or Realized AFOVOBI

BRANCH INVENTORY FROM OUTSIDER @ COST

Billed Price
BEG. INVTY from HO xxx
+ SFHO xxx
TGAS xxx
- ENDING INVTY from HO (xxx)
COGS xxx

COMPUTATION OF BRANCH TRUE INCOME

Billed Price
BEG. INVTY xxx
+ PURCHASES
+ SFHO xxx
TGAS xxx
- ENDING INVTY (xxx)
COGS xxx

SALES xxx
COGS (xxx)
GROSS PROFIT xxx
EXPENSES (xxx)
NI PER BRANCH xxx
+ COGS MU xxx
TRUE NET INCOME xxx

COMBINED NET INCOME = HOME OFFICE NET INCOME + BRANCH TRUE INCOME
BRANCH ADJUSTED COGS = COGS PER BRANCH – COGS MU
COMBINED COST OF GOODS SOLD =HO COGS + BRANCH ADJUSTED COGS

Transactions between Branches

Occasionally, branch operations require that merchandise or other assets be transferred from one branch
to another. A branch does not maintain a reciprocal account with another branch but records the transfer
in the Home Office account. The transfer of merchandise from one branch to another does not increase
the cost of inventories by the freight costs incurred because of the indirect routing. The amount of freight
costs properly included in inventories at a branch is limited to the cost of shipping the merchandise
directly from the home office to its present location. Excess freight costs are recognized as expenses of
the home office.
Accounting for Home Office and Branch
MULTIPLE CHOICES.

1. Romy Corporation has one branch office, named Tibo Branch. Romy is performing the end-of-the-period
reconciliation of its Tibo Branch. The following items are unsettled at the end of the accounting period (you may
assume that the item has been reflected in the accounts of the underlined entity):"

Romy has agreed to remove P750 of excess freight charges charged to Tibo when Romy shipped twice as much
inventory as Tibo requested.

Tibo mailed a check for P11,000 to Romy as a payment for merchandise shipped from Romy to Tibo. Romy has
not yet received the check.
Tibo returned defective merchandise to Romy. The merchandise was billed to Tibo at P4,000 when its actual
cost was P3,000.
Advertising expense attributable to the branch office were paid for by the home office in the amount of PS,000.

If the adjusted balances for the Tibo Branch Account and the Romy Home Office Account is PS00,000, what
unadjusted balance was listed in (1) Romy's Tibo Branch Account and (2) Tibo's Home Office Account?
a. ( 1) P510,250 and ( 2) P505,000.
b. ( 1) P515,000 and (2) P495,750.
c. ( 1) P514,000 and ( 2) P516,000.
d. ( 1) P504,000 and (2) P500,750.

2. The Meycauayan branch of Marco Company, at the end of its first quarter of operations, submitted the following
income statement:
Sales P300,000
Cost of sales:
Shipments from home office P280,000
Local purchases 30,000
Total P310,000
Inventory at end 50,000 260,000
Gross margin on sales P 40,000
Expenses 35,000
Net income P 5,000

Shipments to the branch were billed at 140% of cost. The branch inventory as at September 30 amounted to P50,000
of which P6,600 was locally purchased. Markup on local purchases, 20% over cost. Branch expenses incurred by
home office amounted to P2,500.
On September 30, the branch inventory at cost and net income realized by the home office from the branch
operations, respectively are:
a. P37,600 and P72,600 c. P50,000 and P55,000
b. P31,600 and P 5,000 d. P37,600 and P70,100

3. A home office transfers inventory to its branch at a 20% markup on cost. During 2018, inventory costing the
home office P80,000 was transferred to the branch. At year-end, the home office adjusted its Unrealized
Intercompany Inventory Profit account downward by P18,200. The branch’s year-end balance sheet shows P4,800
of inventory acquired from the home office.
How much is the beginning inventory of the branch at cost?
a. P 15,000 c. P 3,000
b. P 18,000 d. P 16,000

Sulu, Inc. established a branch in Jolo 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:
Sulu, Inc. Jolo, Branch
Sales P 600,000 P 210,000
Beginning inventory 120,000 60,000
Purchases 500,000 -
Shipment to branch 130,000 -
Shipment from home office 156,000
Operating expenses 72,000 36,000
Ending inventory 98,000 48,000
All of the branch inventory is acquired from the home office.
4. On the basis of these account balances, the combined net income of the home office and the branch is:
a. P170,000 c. P278,000
b. P 70,000 d. P132,000
Bicol Company is engaged in merchandising both at Home Office in Makati and a branch in Cebu. Selected accounts
in the trial balances of the Home Office, and the branch at December 31, 2018 follow:
Debit Home Office Branch
Inventory, January P 23,000 P 11,550
Branch 58,300
Purchases 190,000
Shipments from Home Office 105,000
Freight in from Home Office 5,500
Sundry expenses 50,000 25,000
Credit
Home Office 53,300
Sales 155,000 140,000
Shipments to Branch 110,000
Allow. for overvaluation of
branch inventory – Jan. 1 1,000

Additional information:
a. Cebu branch receives all its merchandise from the home office. The Home Office bills the goods at cost plus 10%
mark-up. At December 31, 2018 a shipment with a billing price of P5,000 was in transit to the branch. Freight
on this shipment was P250 which is to be treated as part of inventory.
b. December 31, 2018 inventories, excluding the shipment in transit was:
Home Office, at cost 30,000
Cebu Branch, at billed value
(excluding freight of P520) 10,400

5. Net income of the Home Office was

a. P 10,000 c. P 20,000
b. P 15000 d. P 22,000

6. True income of Cebu Branch was

a. P 10,470 c. P 12,470
b. P 11,470 d. P 13,470

The following data were taken from the records of Star Corporation of Manila and its Bulacan Branch for 2018:
Manila office Bulacan branch
Sales P 530,000 P157,500
Inventory, Jan. 1 57,500 22,250
Purchases 410,000
Shipment to branch 105,000
Shipment from
home office 126,000
Inventory, Dec. 31 71,250 29,250
Expenses 191,000 50,750
In 2018, Home office billed the branch at 120% of cost which was lower by 5% than last year’s.
7. The combined net income of the home office and the branch for 2018 was:
a. P48,325 c. P49,850
b. P48,575 d. P56,075

Nicole Company has a branch in Boracay established on April 1, 2018. During the year 2018, the home office shipped
merchandise to the branch at billed value of P125,000 which was 25% above cost. At the end of the year, the branch
reported sales of P200,000, operating expenses of P95,000, and a net income from the operation of P15,000.
8. The true income of the branch was
a. P 15,000 c. P 18,000
b. P 25,000 d. P 33,000
Xero Corporation operates a number of branches in Metro Manila. On June 30, 2018, its Sta. Clara branch showed a
Home Office account balance of P27,350 and the Home Office books showed a Sta. Clara branch account balance of
P25,550. The following information may help in reconciling both accounts:
1. A P12,000 shipment charged by Home Office to Sta. Clara branch was actually sent to and retained by Sta.
Isabel branch.
2. A P15,000 shipment, intended and charged to Sto. Domingo branch was shipped to Sta. Clara branch and
retained by the latter.
3. A P2,000 emergency cash transfer from Sta. Isabel branch was not taken up in the Home Office books.
4. Home Office collects a Sta. Clara branch accounts receivable of P3,600 and fails to notify the branch.
5. Home office was charged for P1,200 for merchandise returned by Sta. Clara branch on June 28. The
merchandise is in transit.
6. Home office erroneously recorded Sta. Clara branch's net income for May, 2018 at P16,275. The branch
reported a net income of P12,675.
9. What is the reconciled amount of the Home Office and Sta. Clara branch reciprocal accounts?
a. P21,750 c. P27,350
b. P23,750 d.P20,150

The LL Company established a branch in Makati City on June 1, 2019. The branch is to receive substantially all
merchandise from the home office. During the remainder of 2019, shipments to the branch amounted to P180,000
which included a 20% mark-up on cost. The branch purchased P45,000 additional merchandise for cash and
reported unsold merchandise of P60,000 at year-end. The branch made sales of P292,500, paid expenses of
P72,000 and remitted to the home office all sales proceeds. The allowance for overvaluation of branch inventory
account on the home office books showed a balance of P7,500 after adjustment.
10. Compute the: (1) branch inventory on December 31, 2019 at cost, and (2) the branch net income as far as
the home office is concerned:
a. (1) P45,000; (2) P78,000
b. (1) P52,500; (2) P78,000
c. (1) P52,000; (2) P55,500
d. (1) P50,000; (2) P79,500

DO-IT-YOURSELF (DIY) DRILL

The following information are extracted from the books and records of PP Company and its branch. The balances
are at December 31, 2019, the third year of the corporation's existence.
Home Office
Books Branch
Books
Sales P600,000
Expenses 200,000
Shipments from home office 360,000
Allowance for overvaluation P72,500

The branch acquired all of its merchandise from the home office. The inventories of the branch at billed prices are
as follows:
January 1, 2019 P75,000
December 31, 2019 84,000

1. The adjusted profit of the branch in so far as the home office is concerned is:
a. P107,500 c. P 58,500
b. P 49,000 d. P 60,000

Nicole Company’s Kalibo branch reports a profit of P17,000 for the year 2019 and a balance in its Home Office
account at the end of the year of P88,000 after closing. The branch income currently is unrecorded by the home
office. During the year, the home office had shipped inventory to the branch at an intracompany profit of P14,000.
Of that amount, P6,000 currently is unrealized.

2. Assuming the branch has made all entries to adjust and close its books for 2019, what is balance in the home
office’s Investment in Branch account?
a. P 65,000 c. P 88,000
b. P 71,000 d. P 94,000

Bicol Company is engaged in merchandising both at Home Office in Makati and a branch in Cebu. Selected accounts
in the trial balances of the Home Office, and the branch at December 31, 2018 follow:
Debit Home Office Branch
Inventory, January P 23,000 P 11,550
Branch 58,300
Purchases 190,000
Shipments from Home Office 105,000
Freight in from Home Office 5,500
Sundry expenses 50,000 25,000
 Credit
Home Office 53,300
Sales 155,000 140,000
Shipments to Branch 110,000
Allow. for overvaluation of
branch inventory – Jan. 1 1,000
Additional information:
a. Cebu branch receives all its merchandise from the home office. The Home Office bills the goods at cost
plus 10% mark-up. At December 31, 2018 a shipment with a billing price of P5,000 was in transit to the
branch. Freight on this shipment was P250 which is to be treated as part of inventory.
b. December 31, 2018 inventories, excluding the shipment in transit was:
Home Office, at cost 30,000
Cebu Branch, at billed value
(excluding freight of P520) 10,400
3. Net income of the Home Office was
a. P 10,000 c. P 20,000
b. P 15000 d. P 22,000
4. True income of Cebu Branch was
a. P 10,470 c. P 12,470
b. P 11,470 d. P 13,470

Trial balances for the home office and for the branch of Mermaid Company show the following accounts before
adjustment as of December 31, 2018. The home office bills merchandise to the branch at 20% above cost.
HO Branch
Unrealized intercompany
inventory profit P10,800
Shipments to branch 24,000
Purchases (other vendors) P7,500
Shipments from Home Office 28,800
Merchandise inventory - December
1, 2018 45,000

5. What part of the December 1, 2018 branch inventory represents acquisitions from outside purchases, and
what part represents acquisitions from the home office?
Outsider Home Office
a. P9,000 P36,000
b. 10,000 35,000
c. 12,000 33,000
d. 15,000 30,000

Universal Textiles has a single branch in Cagayan de Oro City. On March 1, 2019, the home office accounting
records included an Allowance for Overvaluation of Inventories with a credit balance of P32,000. During March,
merchandise costing P36,000 was shipped to the CDO branch and billed at a price representing a 40% markup on
the billed price. On March 31, the branch reported a net loss of P11,500 for March and ending inventories at billed
prices of P25,000. Mark-up was uniform on all shipments.

6. Calculate the overstatement of the cost of sales in the branch income statement in terms of the actual cost of
sales, i.e. per home office cost.
a. P46,000 c. P39,257
b. P22,000 d. P40,000

On December 31, 2019, the Branch account in the Manila Home Office books shows a balance of P55,500. You
ascertain the following facts in analyzing this account.
1. On December 31, 2019, merchandise billed at P5,800 was in transit from the home office to the branch.
2. The branch had collected home office accounts receivable of P560; the home office was not notified.
3. On December 29, 2019, the home office mailed a check for P2,000 to the branch, but the accountant for
the home office had recorded the check as a debit to Charitable Contributions; the branch had not received
the check as of December 31, 2019.
4. Branch net income for December 2019 was recorded erroneously by the home office at P840 instead of
P480.
5. On December 28, 2019, the branch had returned supplies costing P220 to the home office; the home office
had not recorded the receipt of the supplies as at Dec. 31.

7. Calculate the adjusted balance of the reciprocal accounts at December 31, 2019.
a. P49,680 c. P46,980
b. P57,480 d. P54,870
8. The AB Trading Co. operates a branch in Iloilo. At close of business on December 31, 2018, Home Office
account in the branch books showed a credit balance of P372,900. The interoffice accounts were in agreement
at the beginning of the year. For purpose of reconciling the interoffice accounts, the following facts were
ascertained;
a. A furniture costing the home office P4,600 was picked up by the branch as P460. The branch will maintain
and use the asset.
b. The branch writes-off uncollectible, accounts of P1,260. The allowance for doubtful accounts is maintained
on the books of the home office. The home office was not yet notified.
c. Freight charge on merchandise made by the home office for P2,715 was recorded in the branch books as
P7,215.
d. Home office credit memo for P9,710 was recorded by the branch at P7,910.
e. Iloilo branch failed to take up a P2,450 debit memo from the home office.
f. The home office inadvertently recorded a remittance for P3,730 from its Ilocos branch as remittance from
its Iloilo branch.
g. Insurance premium of P1,675 charged by the home office was taken up twice by the branch.
h. A P14,500 branch remittance to the home office initiated on December 28, 2018, was recorded on the
home office books on January 2, 2019.
i. A home office inventory shipment to Ilocos branch on December 29, 2018, was recorded by the branch on
January 3, 2019; the billing of P47,000 was at cost,
j. A branch customer remitted a P19,000 to the home office, The home office recorded this cash collection
on December 22, 2018. Meanwhile, back at the branch, no entry has been made yet.
Determine the balance of the Investment in Branch account before adjustments:
a. P364,545 c. P319,545
b. P307,515 d. P366,545