GROUP 7

SPECIAL
PROBLEMS IN
ACCOUNTING
FOR BRANCH
OPERATIONS
 CONTENTS
1. MERCHANDISE SHIPMENTS
TO BRANCH BILLED AT A
PRICE ABOVE COST
Individual profit of the branch
True profit of the branch
Combined financial statements-
shipments at billed price
Additional Illustrations
2. INTER-BRANCH
TRANSACTIONS
Inter-branch transfer of cash
Inter-branch transfer of
merchandise
Excessive freight
Savings on freight
GROUP 7

MERCHANDISE
SHIPMENTS TO
BRANCH BILLED
AT PRICE ABOVE
COST
ANTONIO, JIELYN V.
ABOVE COST
it is the cost plus the markup, or the
"BILLED PRICE"

The branch records the shipment at the

BILLED PRICE rather than at cost.
Internal Reporting Purposes only
To consider the home office contribution to
profit through it's central funtion
When shipment are billed at cost, the
branch's gross profit solely to the branch
When shipments are billed above cost, a
portion of the branch's gross profit is
attributed to the home office.
 SHIPMENT AT
BILLED PRICE
Home office ships to the branch inventory costing 100,000 and bills the branch 120% of
the cost.

HOME OFFICE BOOKS BRANCH BOOKS

Investment in Branch. . . . . . . . . . 120,000 Shipment from Home Office. . . . . . . . . . 120,000

Shipment to branch. . . . . . . . . . .100,000 Home Office. . . . . . . . . . 120,000

Allowance for markup. . . . . . . . . .20,000

 FREIGHT PAID BY
HOME OFFICE
Home office ships to the branch inventory costing 200,000 and bills the branch 120% of
the cost. Home office pays freight of 10,000.

HOME OFFICE BOOKS BRANCH BOOKS

Investment in Branch. . . . . . . . . . 250,000 Shipment from Home Office. . . . . . . . . . 240,000

Shipment to branch. . . . . . . . . . .200,000 Freight-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Home Office. . . . . . . . . . 250,000

Allowance for markup. . . . . . . . . .40,000

 FREIGHT PAID BY
BRANCH
Home office ships to the branch inventory costing 80,000 and bills the branch 120% of
the cost. Branch pays freight of 6,000.

HOME OFFICE BOOKS BRANCH BOOKS

Investment in Branch. . . . . . . . . . 96,000 Shipment from Home Office. . . . . . . . . . 96,000

Shipment to branch. . . . . . . . . . .80,000 Freight-in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000

Allowance for markup. . . . . . . . . .16,000 Home Office. . . . . . . . . . 96,000

Cash . . . . . . . . . . . . . . . . . . . . . 6,000
 PURCHASES FROM
OUTSIDE PARTIES
Branch purchases inventory from a supplier for 40,000, on account. Branch pays Freight of
2,000.

HOME OFFICE BOOKS BRANCH BOOKS

Purchases. . . . . . . . . . .. . . . . . . . . . . . . 40,000

NO ENTRY Freight-in . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Accounts Payable . . . . . . . . . 40,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
 REVENUE

Branch makes total sales of 500,000 on account.

HOME OFFICE BOOKS BRANCH BOOKS

Accounts Receivable. . . . . . . . . . . . 500,000

NO ENTRY Sales . . . . . . . . . . . . . . . . . . . . . . . . 500,000

 EXPENSES

Branch incurs utilities expense of 100,000, 20,000 of which were allocated from the home
office.

HOME OFFICE BOOKS BRANCH BOOKS

Investment in Branch . . . . . . . . .20,000 Utilities Expense. . . . . . . . . . . . 100,000

Utilities Expenses . . . . .. . . . . 20,000 Home Office . . . . . . . . . . . . . . . . . . . . . . . . 20,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
INDIVIDUAL PROFIT OF THE BRANCH
The branch has an ending inventory of 250,000, inclusive of freight. The branch's individual
profit is computed as follows:
120,000 + 240,000 + 96,000
= 456,000
INDIVIDUAL PROFIT OF THE BRANCH
The branch has an ending inventory of 250,000, inclusive of freight. The branch's individual
profit is computed as follows:
 TRUE PROFIT OF BRANCH
The branch's ending inventory of 250,000 consists of 240,000 shipments from home
office and 10,000 purchases from supplier. In so far as the home office is concerned, the
true profit of the branch is as follows:
100,000+ 200,000+ 80,000
= 380,000
 TRUE PROFIT OF BRANCH
The branch's ending inventory of 250,000 consists of 240,000 shipments from home
office and 10,000 purchases from supplier. In so far as the home office is concerned, the
true profit of the branch is as follows:
 ALTERNATIVE SOLUTION
Another way of computing the true profit is to simply add the realized markup to
the individual profit. The Realized markup is the markup on the shipments that
were sold to external parties.
20,000+ 40,000+ 16,000
= 76,000
 ALTERNATIVE SOLUTION
Another way of computing the true profit is to simply add the realized markup to
the individual profit. The Realized markup is the markup on the shipments that
were sold to external parties.

*
/
COMBINED
FINANCIAL
STATEMENT
SHIPMENT AT The "allowance" account is
BILLED PRICE eliminated together with
"shipments" accounts

Remove the markups and

restate the branch's cost of
good sold and ending inventory
to their original costs.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
/ 120%
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
ILLUSTRATION

POSITIVE VALUE - DEBIT

NEGATIVE VALUE - CREDIT

REQUIRED:
1. COMPUTE FOR THE COMBINED PROFIT
2. PREPARE THE COMBINED STATEMENT
OF FINANCIAL POSITION
 R1: COMBINED STATEMENT OF PROFIT OR LOSS
SOLUTION

CHECKING THE
ACCURACY
COMPUTE INDIVIDUAL PROFITS OF THE
HOME OFFICE AND THE BRANCH AND
ADDING THEREON THE REALIZED
MARKUP.
INDIVIDUAL PROFIT OF THE BRANCH
The branch has an ending inventory of 250,000, inclusive of freight. The branch's individual
profit is computed as follows:
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
ILLUSTRATION
INDIVIDUAL PROFIT OF THE
HOME OFFICE
R1: COMBINED STATEMENT OF PROFIT OR LOSS

CHECKING
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION

/ 120%
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
ILLUSTRATION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
R2: COMBINED STATEMENT OF FINANCIAL
POSITION
THANK YOU!