DE LA SALLE UNIVERSITY

RAMON V. DEL ROSARIO COLLEGE OF BUSINESS

DEPARTMENT OF ACCOUNTANCY
ACYAVA2 – Advanced Financial Accounting and Reporting Part 2
Academic Year 2023-2024; 3rd Term
Classroom Exercise Unit 1: Home Office, Branch, and Agency Accounting

Problem 1:
On November 1, 2023, the home office established a branch in Mindoro. The following are the
transactions of the home office and the Mindoro branch during November:
a) The home office transferred cash of P800,000 to the Mindoro branch.
b) The home office shipped 10,000 units of merchandise at a total amount of P1,280,000.
c) The freight cost on the home office shipment above was paid by the home office in the amount
of P48,000 and by the Mindoro branch P16,000.
d) As authorized by the home office, additional 5,000 units of merchandise were purchased by the
Mindoro branch from outside suppliers at P496,000.
e) A piece of equipment was purchased by the home office costing P1,152,000 and was delivered
to the Mindoro branch. The equipment records were kept by the home office.
f) The Mindoro branch sold merchandise on account for P1,280,000.
g) The Mindoro branch collected its account receivable amounting to P1,152,000.
h) The Mindoro branch sold goods for cash amounting to P800,000.
i) The Mindoro branch sent cash to the home office amounting to P320,000.
j) The following are the branch expenses paid during November: Advertising expenses, P12,800;
sales commission, P208,000, and other expenses, P3,200.
k) The depreciation recorded by the home office for the month of November included P48,000 that
is related to the equipment used by the Mindoro branch. The insurance on this equipment was
amortized by the home office in the amount of P8,000.
l) The merchandise inventory of the branch on November 30 included 1,500 from the home office
shipments and 500 units from purchases from outside suppliers.

Required: Prepare the journal entries to record the foregoing and answer the following–
1. How much is the branch’s inventory on November 30, 2023?
2. How much is the branch’s cost of goods sold for November?
3. How much is the branch’s reported net income for the month ended November 30, 2023?
4. What is the balance of the “Branch Current-Mindoro” account in the books of the home
office on November 30, 2023, after closing branch’s profit or loss?
5. What is the balance of the “Home Office Current” account in the books of the Mindoro
branch on November 30, 2023, after closing profit or loss?

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Problem 2:
Bill Co. operates a branch in Benguet City. At the close of the business on December 31, 2024, Benguet
branch current account in the home office books showed a debit balance of P484,750. The interoffice
accounts were in agreement at the beginning of the year. For purposes of reconciling the interoffice
accounts, the following facts were ascertained:

(a) Furniture and fixtures costing the home office P19,000 was picked up by the branch as P1,900.
The branch will maintain the records of the assets used.
(b) The branch failed to take up a P3,000 debit memo from the home office.
(c) Home office credit memo for P2,400 was recorded twice by the branch.
(d) The home office inadvertently recorded a remittance for P11,000 from its Kalinga branch as
remittance from its Benguet branch.
(e) On December 30, 2024, Benguet branch sent a check for P27,000 to the home office to remit
its cash collections. The check was not received by the home office until January 4, 2025.
(f) On December 27, 2024, the branch returned P11,000 of merchandise to the home office. The
merchandise was not received by the home office until January 5, 2025.
(g) The home office allocated general expenses of P5,000 to the branch. The branch had not
entered the allocation at year-end.
(h) Branch store insurance premiums of P3,200 was paid by the home office. The branch recorded
the amount of P32,000.
(i) A P12,000 branch remittance to the home office initiated on December 28, 2024, was recorded
twice by the home office on December 29 and on December 30.
(j) A P30,000 branch remittance to the home office initiated on December 29, 2024, was recorded
twice by the home office on December 30 and on January 2.
(k) The home office incurred P18,000 of advertising expense and allocated one-third of this amount
to the branch on December 17, 2024. The branch recorded this transaction on December 19,
2024, amounting to P9,000.
(l) A branch customer remitted P7,500 to the home office. The home office recorded this cash
collection on December 22, 2024. Upon notification on the same year, the branch debited the
amount to accounts receivable and credited home office current.
(m) Inventory costing P121,900 was sent to the branch by the home office on December 19, 2024.
However, the branch recorded the said transaction at P129,100.
(n) A P32,000 shipment, charged by the home office to Benguet branch was sent to and retained
by Baguio branch.
(o) The branch collected a home office accounts receivable of P9,200 but the home office failed to
record such collection.
(p) The branch writes off uncollectible accounts of P7,500. The allowance for doubtful accounts is
maintained on the books of the home office. The home office is not yet notified about the write-
off.

1. What is the adjusted balance of branch current account as of December 31, 2024?
2. What is the adjusted balance of home office current account as of December 31, 2024?
3. What is the unadjusted balance of home office current account as of December 31,
2024?
4. What is the amount of total adjustments in the Benguet branch current account?
5. What is the amount of total adjustments in the home office current account?

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Problem 3:
Home office bills its branch for merchandise shipments at 30% above cost. The following are some of
the account balances on the books of home office and its branch as of December 31, 2027:

Home Office Books Branch’s Books

Inventory, January 1 P70,000 P203,000
Shipments from home office 527,800
Shipments to branch 507,500
Branch inventory allowance 183,750
Purchases 3,150,000
Sales 4,200,000 2,520,000
Operating expenses 1,015,000 385,000

Per physical count, the ending inventory of the branch is P147,000 including goods from outside
purchases of P96,950; the ending inventory of the home office is P420,000.

1. What is the amount of the unrealized profit in the separate books of the home office on
January 1, 2028?
2. What is the branch beginning inventory in 2027 that came from outside purchases?
3. What is the Cost of goods available for sale of the branch?
4. What is the total ending inventory to be shown on the combined financial statements?
5. What is the combined net income for the year?

Problem 3:
The following information is given regarding SOPHIE Company:
a. The reciprocal account in the separate income statement of the home office amount to
P450,000.

b. During the year 2025 (current year), the home office bills merchandise to the branch at 215%
of cost.

c. The beginning inventory of the branch is P498,750.

d. During the 2025, the branch purchased from vendors merchandise amounting to P300,000.

e. The ending inventory of the branch as shown in the combined financial statements is
P534,250

f. The allowance for overvaluation before adjustment is P640,000.

g. The beginning inventory of the branch from the home office at cost is P306,250.

h. The unrealized profit at the end of the year must be decreased by P110,000

1. What is the total goods available for sale recorded in the branch’s books at the end of
2025?
2. What is the branch’s cost of goods sold in the combined financial statements at the end
of 2025?

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Problem 4:
The ACYAVA Company maintains branches that market the products that it produces. Merchandise is
billed to the branches at cost, with the branches paying freight charges from the home office to the
branch. On November 15, the Cavite branch ships part of its stock to the Manila branch upon
authorization by the home office. Originally, Cavite branch had been billed for this merchandise at
P1,600 and had paid freight charges of P350 on the shipment from the home office. Manila branch,
upon receiving the merchandise, pays freight charges of P250 on the shipment from Cavite branch. If
the shipment had been made from the home office directly to the Manila branch, the freight cost would
have been P400.

REQUIRED: Prepare the journal entries in the books of the home office and the two branches
for the interbranch merchandise transfer and determine the following:
1. How much is the excess freight?
2. How much was debited to the home office current account in the books of Cavite branch
to reflect the interbranch transfer of merchandise?
3. How much was credited to the home office current account in the books of Manila branch
to reflect the interbranch transfer of merchandise?
4. How much was debited to the branch current – Manila in the home office books to reflect
the interbranch transfer of merchandise?
5. How much was credited to the branch current – Cavite in the home office books to reflect
the interbranch transfer of merchandise?

Problem 5:
On June 1, 2025, the Daet Main Office established a sales agency in Ortigas. The main office sent
samples of its merchandise amounting to P16,800 and a working fund amounting to P144,000 to be
maintained on the imprest basis. The samples sent were intended to last until January 1, 2026. The
agency transmitted to the home office sale of goods costing P583,200 but the home office was able to
fill up only 30% of the said transmitted sales orders. The gross profit rate on sales agency order is 40%
of gross sales. Collections from customers amounted to P164,350, net of 10% sales discount.
Payments made by the agency during June, July and August were annual rent P140,400, advertising
expense P9,300 and utilities P12,600. The agency also purchased an equipment on July 1, 2025, worth
P22,000 which will be depreciated at 30% per annum. What is the income of the agency for the
three months ended August 31, 2025?

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Updated May 2024