MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

MATERI LAB 1
HOME OFFICE AND BRANCH OFFICE

❖ Definition of Branch Office

Branch offices are part of entities. Branch offices are treated separately in
terms of their accounting system, but not in terms of legal business entities.

❖ The Differences between Branch Offices and Sales Agencies

Aspects Sales Agencies Branches

Sales to Outside Sales are controlled by Branches can do their own

Entities
controlling entities sales to outside entities

Merchandise Inventory Sales agencies do not Branches account for their

account for their inventory, own inventories

but they can display them

Sales Requirements Sales agencies have sales Branches don’t have sales
requirements from requirements from

controlling entities controlling entities

Operating Expenses Controlled by Controlling Branches account for their

Entities, treated similar to own expenses
petty cash

Customer Credit Sales agencies do not pass on Branches pass on customer

customer credit credit

Accounting System Petty cash Branches have their own

accounting system

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

❖ Transactions between Home Office and Branch Office

❖ Combining Home Office and Branch Office Financial Statements

1. Eliminate Reciprocal Accounts
Home office and branch office transactions are reciprocal transactions. To
record this reciprocal transaction, reciprocal accounts are used.
Reciprocal accounts have a corresponding nature, which means whenever
there is a debit entry of a reciprocal account in the home office, there will also
be a credit entry of its matching reciprocal account in the branch office, and
vice versa.
Examples: Home Office & Branch Office, Shipment to Branch Office &
Shipment from Home Office
2. Combine Non-Reciprocal Accounts

❖ Examples
- Creation of a New Branch
A company creates a new branch by transferring an amount of cash and equipment
Home Office (in $) Branch Office (in $)
Branch Office xxx Cash xxx
Cash xxx Equipment xxx
Equipment xxx Home Office xxx

Branch office remits an amount of cash to Home Office

Cash xxx Home Office xxx
Branch Office xxx Cash xxx

ADIVA – FARHAN – NADYA FATA 2019

 MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

Branch office transfers $xxx to another branch office

(in this example branch A transfer cash to branch B)

Home Office Branch A Branch B

Branch B xxx Home Office xxx Cash xxx
Branch A xxx Cash xxx Home Office xxx

- Merchandise Shipment
Home Office transfers merchandise to Branch Office at a cost of $xxx
Home Office Branch Office
Branch Office xxx Shipment from HO xxx
Shipment to BO xxx Home Office xxx

Excess Cost (At Cost and At Billing Price)

Home Office transfers merchandise to Branch, the cost is $xxx excluding a markup
of A% using one of the following methods:
• At Cost
Branch Office yyy Shipment from HO yyy
Shipment to BO xxx Home Office yyy
Loading in Branch xxx*A%
xxx = price of merchandise at cost (excluding markup)
xxx*A% = total markup in merchandise
yyy = price of merchandise at billing price (including markup)
yyy = xxx*(100%+A%)

• At Billing Price
Branch Office yyy Shipment from HO yyy
Shipment to BO yyy Home Office yyy

at the end of the period, Home Office records:

Shipment to BO xxx*A% To adjust shipment of merchandise
Loading in Branch xxx*A% to a cost basis

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

to adjust for branch profit, assuming $ppp profit was realized

Loading in Branch ppp
Branch Profit ppp
ppp = realized profit on the period

- Freight Cost
Home Office paid freight cost of $aaa for merchandise transferred to branch office.
The merchandise cost $yyy
Branch Office aaa+yyy Shipment from HO yyy
Shipment to BO yyy Freight In aaa
Cash aaa Home Office aaa+yyy

- Merchandise Return
Branch returned A% of the merchandise from Home Office, Branch paid $bbb for the
shipment back to home office
Shipment to BO yyy*A% Home Office zzz
Loss on Excess Freight ccc Shipment from HO yyy*A%
Branch Office zzz Freight In aaa*A%
Cash bbb
yyy = previous shipment transfers from home to branch
aaa = freight in that was accrued at previous transfer transaction
ccc = (aaa*A%) + bbb

- Expense Allocation
Branch pays $xxx for operating expenses that relates equally to branch and home office
Operating Expenses xxx*1/2 Operating Expenses xxx*1/2
Branch Office xxx*1/2 Home Office xxx*1/2
Cash xxx

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

- Working Paper Entries

a. To Eliminate Loading in Beginning Branch Inventory
Loading in Branch xxx
Cost of Sales xxx
b. To Eliminate Loading in Current-Year Shipments to Branch
Loading in Branch xxx
Cost of Sales xxx
c. To Eliminate Loading in Ending Branch Inventory
Cost of Sales xxx
Inventories xxx
d. To Eliminate Reciprocal Home Office and Branch Balances
Home Office xxx
Branch Office xxx

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

❖ Illustration
In the beginning of December 2022, Loki Company created a new branch in Bali. Bali
branch purchased merchandise from outside suppliers on account. Below is presented
the Statement of Financial Position of Loki Company’s home office at December 1,
2022 (In thousand):
Home Office
Assets
Cash Rp 210.000
Accounts Receivable-net Rp 25.000
Inventories Rp 85.000
Equipment-net Rp 190.000
Total Assets Rp 510.000

Liabilities and Equity

Accounts Payable Rp 95.000
Other Liabilities Rp 18.000
Capital Stock Rp 200.000
Retained Earnings December 1,
Rp 197.000
2022
Total Liabilities and Equity Rp 510.000

Below are transactions that occurred during December 2022 (In thousand):
Date Transactions
December 1 Loki Company created a new branch in Bali by transferring
Rp45.000 in cash and equipment worth Rp10.000
December 4 Loki Company transferred merchandise to Bali Branch, Rp30.000
in cost excluding a markup of 20% using at billing price method
December 9 Bali Branch remitted Rp7.000 to Loki Company’s Home Office
December 13 Loki Company paid Rp400 for Rp30.000 of merchandise shipped to
Bali Branch at cost
December 15 Bali Branch returned 20% of the merchandise transferred from Loki
Company on December 13, Bali Branch paid Rp100 for the
shipment

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

December 24 Bali Branch paid Rp2.000 for advertising expense equally for
Branch and Home Office

Additional Information (In thousand):

HO BO
Sales Rp250.000 Rp170.000 All sales transactions and purchase
Ending Inventory at transactions were done on account.
Rp 12.000 Rp 6.000
Dec 31, 2022 60% of branch’s ending inventory was
Purchases Rp 98.000 Rp 17.000 acquired from outside entities.
Depreciation Expense Rp 2.000 Rp 2.000

Instructions:

Prepare the necessary journal entries, including adjusting and closing entries for both
home office and branch office to record the transactions above and prepare the working
paper entries and combining working papers. The home office recorded transfers of
inventory using the billing price method.

ADIVA – FARHAN – NADYA FATA 2019

 MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

Solutions:

- Journal entries

Home Office Branch Office

Date
(In thousand Rupiah) (In thousand Rupiah)
Dec 1 Bali Branch 55.000 Cash 45.000
Cash 45.000 Equipment 10.000
Equipment 10.000 Home Office 55.000
Dec 4 Bali Branch 36.000 Shipments from HO 36.000
Shipments to BO 36.000 Home Office 36.000
Dec 9 Cash 7.000 Home Office 7.000
Bali Branch 7.000 Cash 7.000
Dec 13 Bali Branch 30.400 Shipments from HO 30.000
Shipments to BO 30.000 Freight In 400
Cash 400 Home Office 30.400
Dec 15 Shipment to BO 6.000 Home Office 6.180
Loss on Excessive Freight 180 Shipments from HO 6.000
Bali Branch 6.180 Freight In 80
Cash 100
Dec 24 Advertising Expense 1.000 Advertising Expense 1.000
Bali Branch 1.000 Home Office 1.000
Cash 2.000
Dec 31 Depreciation Expense 2.000 Depreciation Expense 2.000
Equipment 2.000 Equipment 2.000

Dec 31 Shipment to BO 6.000

Loading in Branch 6.000
(36.000 – (30.000 × 20%))

ADIVA – FARHAN – NADYA FATA 2019

 MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

- Adjusting and Closing Entries

Home Office Branch Office
Date
(In thousand Rupiah) (In thousand Rupiah)
Dec 31 Loading in Branch* 5.600 Sales 170.000
Branch Profit 5.600 Ending inventory 6.000
Dec 31 Bali Branch 95.680 Shipment from HO 60.000
Branch Profit 95.680 Purchase 17.000
(From branch office journal for reciprocal home office) Freight In 320
Dec 31 Sales 250.000 Depreciation Expense 2.000
Ending Inventory 12.000 Advertising Expense 1.000
Shipments to BO 54.000 Home Office 95.680
Branch Profit 101.280
Beginning Inventory 85.000
Purchases 98.000
Depreciation Expense 2.000
Advertising Expense 1.000
Loss on Excess Freight 180
Retained Earnings 231.100

*Branch Profit Calculations (In thousand Rupiah)

Ending Inventory from HO After Mark-Up of 20% = 6.000 × 40%**
= 2.400
Ending Inventory from HO (Cost Basis) = 2.400 ÷ 120%
= 2.000
Loading in Branch for 2.400 Ending Inventory = 2.400 – 2.000
= 400
Realized Loading Inventory = 6.000 - 400
= 5.600

**40% is percentage inventory acquired from home office

ADIVA – FARHAN – NADYA FATA 2019

MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

- Working paper entries (In Thousand Rupiah)

a. To Eliminate Loading in Current-Year Shipments to Branch

Loading in Branch 6.000
Cost of Sales 6.000
b. To Eliminate Loading in Ending Branch Inventory
Cost of Sales 400
Inventories 400
c. To Eliminate Reciprocal Home Office and Branch Balances
Home Office 107.220***
Bali Branch 107.220
***Obtained from the ending balances of Home Office and Bali Branch before
adjusting and closing

- Cost of Sales Calculations (In Thousand Rupiah)

Home Office Bali Branch
Inventory Dec 1, 2022 85.000 -
Purchases 98.000 17.000
Shipments to BO (54.000)
Shipments from HO 60.000
Goods Available for Sale 129.000 77.000
Inventory Dec 31, 2022 (12.000) (6.000)
Cost of Sales 117.000 71.000

ADIVA – FARHAN – NADYA FATA 2019

 MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2019

- Combining Working Papers (Trial Balance Approach)

LOKI COMPANY HOME OFFICE AND BRANCH WORKING

PAPERS FOR THE YEAR ENDED DECEMBER 31, 2022
(In Thousand Rupiah)
Home Bali Adjustments and Income Balance
Office Branch Eliminations Statement Sheet
Debits Debit Credit
Cash 171.600 35.900 207.500
Accounts Receivable-net 275.000 170.000 445.000
Inventories 12.000 6.000 b 400 17.600
Equipment-net 178.000 8.000 186.000
Bali Branch 107.220 c 107.220 -
Cost of Sales 117.000 71.000 b 400 a 6.000 (182.400)
Freight-In 320 ( 320)
Advertising Expense 1.000 1.000 ( 2.000)
Depreciation Expense 2.000 2.000 ( 4.000)
Loss on Excess Freight 180 ( 180)
864.000 294.220 856.100
Credits
Accounts Payable 193.000 17.000 210.000
Other Liabilities 18.000 18.000
Loading in Branch 6.000 a 6.000 -
Home Office 107.220 c 107.220 -
Capital Stock 200.000 200.000
Retained Earnings Dec 1, 197.000 197.000
2022
Sales 250.000 170.000 420.000
864.000 294.220
Net Income 231.100 231.100
856.100

ADIVA – FARHAN – NADYA FATA 2019