Normal entry

b. Equipment (HO carries per policy)

Cash (Branch paid)
If silent, branch will carry its own PPE

c. Freight in (Branch)
Cash (HO paid)
If silent, FOBSP For the original freight

d. Purchases (Branch purchased)

Cash (Branch paid)
If may additional freight

AJE:
b. Depreciation Expense (Branch used the PPE)
Accumulated Depreciation (HO kasi the cost is with the HO)
Accumulated depreciation shall be recognized by who recognized the cost because
accumulated depreciation is a contra-asset
 Home Office Books Branch Books
a. Investment in Branch ### Cash ###
Cash ### Home office current ###
Debit memo from HO

b. Equipment - Branch ### Home office current ###

Investment in Branch ### Cash ###
Debit memo from Br

c. Investment in Branch ### Shipment from HO ###

Shipment to Branch ### Home office current ###
AFOBI ###
Debit memo from HO
NOTE: Shipment to branch - deduction sa COGS of HO NOTE: Shipment from HO - addition to COGS of the branch
Why? The inventory was included in Purchases (ibawas sa purchases)

Investment in Branch 4,000.00 Freight-in 4,000.00

Cash 4,000.00 Home office current 4,000.00

d. No entry Purchases 8,000.00

Cash 8,000.00
NOTE: Purchases is used for inventory from outside suppliers.

e. No entry Cash ###

Sales ###

f. AFOBI 400.00 Home office current 2,000.00

Shipment to Branch 1,600.00 Shipment from HO 2,000.00
Investment in Branch 2,000.00
True cost x 1.25 = Billed price
? x 1.25 = 2,000

For the original freight Loss 100.00 Home office current 100.00
Investment in Branch 100.00 Freight-in (2,000 x 5%) 100.00
Why? Because kasalanan ni home office na nagpdala ng faulty merchaFreight is 5% of the billed price

If may additional freight Loss 20.00 Home office current 20.00

IIB 20.00 Cash 20.00
If branch paid for the freight of returned merchandise to HO If branch paid for the freight of returned merchandise to HO

g. No entry OPEX ###

Cash ###

h. Cash ### Home office current ###

Investment in Branch ### Cash ###
Parang withdrawal

AJEs:
a. No entry OPEX 8,000.00
Salaries Payable 8,000.00

b. Investment in Branch 666.67 OPEX 666.67

Accumulated Depreciation - Bran 666.67 Home office current 666.67
One month depreciation

c. No entry Merchandise Inventory, end ###

Income Summary/COGS ###
(4,000 + 20,000 + 800)
Separate income statement of the branch

COGS computation:
Beginning inventory -
Purchases (item d) 8,000.00
Net shipment from home office
Item c. 80,000.00
Item f. (2,000.00) 78,000.00
Net freight
Item c. 4,000.00
Item f. (100.00) 3,900.00
COGAS 89,900.00
Ending inventory ###
COGS 65,100.00

Sales (item e.) 60,000.00

COGS ###
Gross profit (loss) (5,100.00)
OPEX
item g. 48,000.00
item AJE a 8,000.00
item AJE b 666.67 ###
Net income of the branch ###
COGS computation for combined FS purposes:
Billed Price True Cost Mark-up Markup is from HO only
Beginning inventory
- from HO - - -
- from outsiders - - If green, no amount
- capitalized freight - -
Purchases from outsiders 8,000.00 8,000.00
Shipment from HO 78,000.00 62,400.00 15,600.00 Billed price = True cost x 1.25
Freight-in 3,900.00 3,900.00
COGAS 89,900.00 74,300.00 15,600.00 AFOBI before adjustment (if the problem is silent, given AFOBI is before adjustment)/AFOBI is called loading during early times
Ending inventory
- from HO (20,000.00) (16,000.00) (4,000.00) AFOBI, ending/unrealized AFOBI/AFOBI after adjustment
- from outsiders (4,000.00) (4,000.00)
- capitalized freight (800.00) (800.00)
COGS 65,100.00 53,500.00 11,600.00 AFOBI realized/realized markup/decrease in AFOBI/AFOBI adjustment
COGS reported by branch true COGS of the branch

How much is the true ending inventory? 20,800.00

true branch NI = branch NI insofar as the home office is concerned = branch NI in the combined FS
true branch COGS = branch COGS insofar as the home office is concerned = branch COGS in the combined FS

Reported NI True NI
Sales 60,000.00 60,000.00
COGS (65,100.00) ###
GP (5,100.00) 6,500.00
OPEX (56,666.67) ###
NI (61,766.67) ###

Reported NI (61,766.67)
AFOBI adjustment/realized 11,600.00
True NI (50,166.67)
FOBI is called loading during early times
ABC Company operates a number of branches in various provinces in the Philippines. On December 31, 2021,
the home office account balance in its Davao Branch showed a balance of P600,000 before any necessary
adjustments. The following information were provided:
a.        The home office collected a Davao branch trade accounts receivable of P9,000. The
branch was not notified about the collection.
b.       Merchandise billed at P6,150 was shipped by the home office to the Davao branch on
December 30. The merchandise was still in transit as of December 31 and has not been
recognized in the books of the branch.
c.        The home office was charged P6,400 when the Davao branch returned merchandise to
the home office on December 31. The merchandise is in transit.
d.       The home office acquired a piece of furniture to be used by the Davao branch for
P8,700. The furniture will be carried in the books of the branch. This was erroneously
recorded as P7,800 by the branch.
e.        Salaries expense charged by the home office to the Davao branch amounted to P4,500.
This was recorded twice by the branch.
f.        A charge amounting to P800 for freight on shipments of merchandise is made by the
home office but the amount was recorded by the Davao branch as P80.
g.       The Davao branch incorrectly sent a debit memo to the home office amounting to
P3,000 representing repairs and maintenance expense. The home office did not record the
debit memo.
h.       The home office sold a fully depreciated equipment for P4,750 and erroneously
credited the proceeds to the Davao branch; the branch is not aware of the transaction.
i.         A home office credit memo representing a discount on merchandise for P800 was not
recorded by the Davao branch.
j.         The Davao branch failed to take up a P7,000 debit memo from the home office
representing share of the branch in advertising expense.
k.       A P24,000 shipment, charged by Home Office to Davao Branch, was actually sent to
and retained by Cebu Branch.
l.         A P30,000 shipment, intended and charged to Aklan Branch was shipped to Davao
Branch and retained by the latter.
m.      The Davao branch recorded a debit memo, representing inventory transfers,
amounting to P20,000 twice.
n.       The home office recorded a cash remittance of P15,000 from Cebu branch as coming
from Davao branch.
o.       The home office recorded branch net income of P84,000. The correct net income of the
branch should be P48,000.

For item o. net income is dagdag sa equity; therefore dagdag sa investment

NOTE: Investment in Branch is accounted for using the EQUITY method
 Home
Investment office
in Davao current

Unadjusted ### ###

a. (9,000.00)

b. 6,150.00

c. (6,400.00)

d.

Wrong credit/add (7,800.00)

Should be credit/add 8,700.00

e.

Credited twice (4,500.00)

f.

Wrong credit/add (80.00)

Should be credit/add 800.00

g.

Incorrect debit/less 3,000.00

h.
See PAJE 4,750.00
i.
CM from HO (800.00)
j.
DM from HO 7,000.00
k.
Incorrect Charged/debited to Davao ###
l.
Incorrect debit to Aklan, should be Davao 30,000.00
m.
Twice recording Dr memo from HO ### Dalawang beses nag-add si Branch
n.
Dapat kay Cebu ibawas; di kay Davao 15,000.00 Mali pagbawas kay Davao
o.
Maling pagdagdag ###
Dapat na dagdag 48,000.00
Adjusted ### ###

Question 1: 583,470
Question 2: 600,120
Question 3: ZERO because combined FS
-add si Branch
Journal entries: Should be entries
Normal HO entry Branch entry
a. Cash (HO collected) Cash HOC Dapat magdebit ng HOC (less)
AR (Branch AR) IIB AR
Not recorded

b. IIB SFHO
STB HOC Dapat magcredit ng HOC (add)

c. STB HOC
IIB SHFO Since in transit kay HO, HO is not yet aware; da

d. PPE (Branch carries) IIB PPE

Cash (HO paid) Cash HOC

e. IIB Salaries Exp

Salaries Exp HOC

f. Freight in (branch records) IIB Freight-in

Cash (HO paid) Cash HOC

Entry made Should be PAJE

h. Cash Cash IIB
IIB Gain Gain
O, HO is not yet aware; dapat magcredit ng IIB (less)
Additional info: The ending inventory in the separate FS of the branch is P290,000.

1. 40,000
2. 1,592,000
3. 2,058,000
4. 560,000
Branch COGS for combined FS
Billed Price True cost Markup
Beginning
From HO 132,000.00 120,000.00 12,000.00
From outsiders 32,000.00 32,000.00 -
Purchases 320,000.00 320,000.00 -
Shipments 468,000.00 360,000.00 108,000.00
COGAS 952,000.00 832,000.00 120,000.00
Ending
From HO (130,000.00) (100,000.00) (30,000.00)
From outsiders (160,000.00) (160,000.00) -
COGS 662,000.00 572,000.00 90,000.00

Ending inventory's markup is 30% because we are using FIFO

COGS of the home office

Beginning inventory 480,000.00
Purchases 1,200,000.00
Shipment to branch (360,000.00)
Freight-in, if any -
COGAS 1,320,000.00
Ending inventory (300,000.00)
COGS of HO 1,020,000.00

Combined COGS
True COGS of branch 572,000.00
COGS of HO 1,020,000.00
Combined COGS 1,592,000.00

HO Branch Combined
Sales 3,000,000.00 ### 4,200,000.00
COGS ### (572,000.00) ###
GP 1,980,000.00 628,000.00 2,608,000.00
OPEX (400,000.00) (150,000.00) (550,000.00)
NI 1,580,000.00 478,000.00 2,058,000.00

Combined ending inventory

Ending inventory of the HO 300,000.00
True ending inventory of branch 260,000.00
Combined ending inventory 560,000.00

Additional discussion:
For the ending inventory given, is it inclusive of the in transit or not?
It depends. If the ending inventory is per count, it is exclusive of the in transit
But if the ending inventory is the should be ending inventory in the separate FS of the branch, it is inclusive.
Interpretation of Alger: Since the problem is silent, the ending inventory is the correct ending inventory
but if indicated per physical count, it is exclusive of in transit, therefore ending inventory per count + in transit = correct endin

Assuming that the ending inventory of the branch per count is P450,000 from HO
Ending inventory per count 450,000.00
Ending inventory in transit 52,000.00
Ending inventory reported 502,000.00

From HO
Billed Price True cost Markup
Beginning
From HO 132,000.00 120,000.00 12,000.00
Shipments 468,000.00 360,000.00 108,000.00
COGAS 600,000.00 480,000.00 120,000.00
Ending
From HO (502,000.00) (390,909.09) (111,090.91)
COGS 98,000.00 89,090.91 8,909.09

From outsiders
Billed Price True cost Markup
Beginning
From outsiders 32,000.00 32,000.00 -
Purchases 320,000.00 320,000.00 -
COGAS 352,000.00 352,000.00 -
Ending
From outsiders (160,000.00) (160,000.00) -
COGS 192,000.00 192,000.00 -
 Journal entry
HO books Branch books
Investment SFHO @ billed
STB @ cost HOC
AFOBI @ markup

Shipment recorded by branch ###

In transit @ billed price 52,000.00
Should be shipment @ billed ###

How much is the true cost of the in transit?

52,000 divided by 1.3 = 40,000 true cost

FS of the branch, it is inclusive.

is the correct ending inventory
g inventory per count + in transit = correct ending inventory at billed price

From HO
Sold Unsold True cost of unsold
From beginning 98,000.00 34,000.00 30,909.09 3,090.91
From CY shipments 468,000.00 ### ###
98,000.00 502,000.00 ### ###

Kelan nagkakaroon ng allocation between old markup and new markup?

ANSWER: If the ending inventory from HO is higher than the CY shipments
576,000 = From HOC + Freight + Outsiders
576,000 = From HOC + Freight + 72,000
504,000 = From HOC + Freight
504,000 = From HOC + 5% from HOC
504,000 = 1.05 from HOC
From HOC @ billed price = 480,000
Freight = 480,000 x 5% = 24,000
If 120% above cost, billed price is 220% of cost
If 120% of cost, billed price is 120% of cost
If markup is 120%, billed price is 220% of cost

Billed price True cost Markup

Beginning inventory
From outsiders 72,000.00 72,000.00 -
From HO 480,000.00 400,000.00 80,000.00
Freight 24,000.00 24,000.00 -
Shipments 1,440,000.00 1,200,000.00 240,000.00
Purchases 200,000.00 200,000.00 -
Freight in 72,000.00 72,000.00 -
COGAS 2,288,000.00 1,968,000.00 320,000.00
Ending inventory
From outsiders (24,000.00) (24,000.00) -
From HO [729,600 - 24,000]/1.05 @ billed price (672,000.00) (560,000.00) ###
Freight (33,600.00) (33,600.00) -
COGS 1,558,400.00 1,350,400.00 208,000.00

Reported True
Sales 2,400,000.00 2,400,000.00
COGS ### ###
GP 841,600.00 1,049,600.00
OPEX (0.00) (0.00)
NI 841,600.00 1,049,600.00
#1 #2

#3 true ending inventory 617,600.00

Solution:
Reported ending inventory 729,600.00
AFOBI, ending (112,000.00)
True ending inventory 617,600.00
 AFOBI
Beginning 80,000.00 Beg.
CY Shipment ### Shipment
Unadjusted ### COGAS
COGS Realized ###
Ending ### Ending
 HO Caloocan Manila
Initial
IIB-C 21,690 SFHO 21,690
shipment
STB-C 21,690 HOC 21,690

Freight of
IIB-C 3,980 FI 3,980
initial
Cash 3,980 HOC 3,980

Transfer to
Manila
#1 Cal to
STB-C 21,690 HOC 21,690
HO
IIB-C 21,690 SFHO 21,690

#2 HO to
IIB-M 21,690 SFHO 21,690
Manila
STB-M 21,690 HOC 21,690

#3 freight IIB-M 3,980 HOC 3,980 FI 5,230

IIB-C 3,980 FI 3,980 Cash 1,250
HOC 3,980

Assuming that the should be freight to Manila from HO is P3,900.

HO Caloocan Manila
Initial
IIB-C 21,690 SFHO 21,690
shipment
STB-C 21,690 HOC 21,690

Freight of
IIB-C 3,980 FI 3,980
initial
Cash 3,980 HOC 3,980

Transfer to
Manila
#1 Cal to
STB-C 21,690 HOC 21,690
HO
IIB-C 21,690 SFHO 21,690

#2 HO to
IIB-M 21,690 SFHO 21,690
Manila
STB-M 21,690 HOC 21,690

#3 freight IIB-M 2,650 HOC 3,980 FI 3,900

Loss 1,330 FI 3,980 Cash 1,250
IIB-C 3,980 HOC 2,650