Lesson 1.

Recognition and Measurement of Merchandise Shipment at Billed Price

(Guerrero & Peralta, 2013)
In addition to general procedures, the following transactions between the home office and
branch which results to special accounting procedures:
1. Merchandise Shipments to the branch at a price in excess cost, at billed price
2. Interbranch transfers of Cash
3. Interbranch transfers of Merchandise
Merchandise Shipments to Branch – Billed at a Price in Excess of Cost
The home office have the discretion to bill merchandise to branches at cost plus an
arbitrary percentage, otherwise known as billed price. Under this method, the actual cost of
the
merchandise is unknown to the branch manager. Therefore, upon receipt of merchandise,
the
branch record the merchandise at the amount based on the accompanying invoices.
When billings to the branch exceed cost, the profits determined by the branch will be less
than the actual profits. The inventories reported by the branch are overstated inasmuch as
they
were valued based on the billed price, not at their cost. Such must be considered by the
home
office in summarizing branch operations.
The entries to record shipments of merchandise from the home office to the branch at
billed price is as follows:
Home Office Books:
Branch Books
Investment in Branch account
Home Office account
Investment in Branch xxx
Shipments to Branch xxx
Allowance for Overvaluation of Branch Inventory xxx
Shipments from Home Office xxx
Home Office xxx
Lesson 1. Recognition and Measurement of Merchandise Shipment at Billed Price
(Guerrero & Peralta, 2013)
In addition to general procedures, the following transactions between the home office and
branch which results to special accounting procedures:
1. Merchandise Shipments to the branch at a price in excess cost, at billed price
2. Interbranch transfers of Cash
3. Interbranch transfers of Merchandise
Merchandise Shipments to Branch – Billed at a Price in Excess of Cost
The home office have the discretion to bill merchandise to branches at cost plus an
arbitrary percentage, otherwise known as billed price. Under this method, the actual cost of
the
merchandise is unknown to the branch manager. Therefore, upon receipt of merchandise,
the
branch record the merchandise at the amount based on the accompanying invoices.
When billings to the branch exceed cost, the profits determined by the branch will be less
than the actual profits. The inventories reported by the branch are overstated inasmuch as
they
were valued based on the billed price, not at their cost. Such must be considered by the
home
office in summarizing branch operations.
The entries to record shipments of merchandise from the home office to the branch at
billed price is as follows:
Home Office Books:
Branch Books
Investment in Branch account
Home Office account
Investment in Branch xxx
Shipments to Branch xxx
Allowance for Overvaluation of Branch Inventory xxx
Shipments from Home Office xxx
Home Office xxx