Home Office and Branch Accounting

RECIPROCAL NON RECIPROCAL

Transactions between the H.O. and the Branch Transactions with third parti

Reciprocal accounts

H.O. Books Branch Books

Branch Current ≠ Home Office Current

1. Timing
Investment Account 2. Errors Capital Account
3. Branch income

Debited everytime Credited everytime

the HO transfers the branch receives CASH
assets to the branch assets to the H.O. AR

Exp
Pro forma entries: Cash

H.O. Books Branch Books

Branch Current xx Cash xx

Cash xx HOC xx

BC @ BP xx SFHO xx
STB @ Cost xx HOC xx
AFO/UP xx

Cash xx HOC xx
BC xx AR xx

BC xx Expense xx
Cash xx HOC xx

BC xx IES xx
Branch Income xx HOC xx

AFO/UP xx
Branch Income xx
 NON RECIPROCAL

nsactions with third parties

xx
xx

xx
xx

H.O. Books Branch Books

BC 120,000 SFHO 120,000

STB 100,000 HOC 120,000
UP 20,000
AR 100,800
Sales 100,800

Expenses 5,000
Cash 5,000

Sales 100,800
SFHO - End 36,000
SFHO- Beg. 120,000
Expenses 5,000
I/ES 11,800

BC 11,800 I/ES 11,800

Branch Income 11,800 HOC 11,800

UP 14,000
Branch Income 14,000 EI @ Billed Price 36,000
 EI @ cost 30,000
Unrealized Profit
6,000 End Beg -
14,000 Realized Profit Current Shipments 20,000
Return shipments
Problem 1

Yolanda Garment Company operates a branch in Tacloban City. At the end of the year, the Unadj.
branch account in the books of the home office at Manila, shows a balance of P150,000. The
following information are ascertained: (1)
(2)
(3)
1. The home office has billed the branch the amount of P37,500, for the merchandise, which was (4)
in transit on December 31. (5)
Adj.
2. A home office accounts receivable for P10,500 was collected by the branch. Said collection was Entries:
not reported to the home office by the branch. (1)

3. Supplies of P4,500 was returned by the branch to the home office but the home office has not (2)
yet reflected in its records the receipt of the supplies.
(3)
4. The branch made profit of P10,100 for the month of December but the home office
erroneously recorded it as P11,180. (4)

5. The branch has not received the cash in the amount of P25,000 sent by home office on (5)
December 31. This was charged to General Expense account.

All transactions are presumed to have been properly recorded.

What is the balance of the Home Office account on the books of the branch as of December 31,
before adjustments?

Problem 2

The Maynilad Corporation decided to open a branch in Cebu. Shipments of merchandise to the
branch totaled P540,000 which included a 20% mark-up on cost. All accounting records are to be
kept at the home office.

The branch submitted the following report summarizing its operations for the period ended
December 31, 2020:

Sales on account 740,000

Sales on cash basis 220,000
Collections of account 600,000
Expenses paid 380,000
Expenses unpaid 120,000
 Purchase of merchandise for cash 260,000
Inventory on Hand, December 31; 80% from H.O. 300,000
Remittance to home office 550,000

1. How much is the ending inventory at cost?

2. The branch operations insofar as the home office is concerned resulted in a net income of?

Unrealized Profit
40,000 End Beg -
50,000 Realized Current 90,000
Problem 3 Return

The following information came from the books and records of Philam Corporation and its
branch. The balances are as of December 31, 2020, the fourth year of the corporation's existence.
Home office Branch
Dr.(Cr.) Dr. (Cr.)
Sales (P850,000)
Shipments to branch (P240,000)
Shipments from home office 360,000
Purchases 180,000
Expenses 160,000
Inventory, January 1, 2020 72,000
Unrealized profit in branch inventory (136,000)

There are no shipments in transit between the home office and the branch. Both Shipments
accounts are properly recorded. The closing inventory at billed prices includes merchandise
acquired from the home office in the amount of P54,000 and P30,000 acquired from vendors for
a total of P84,000.
36,000 30,000 66,000 EI@cost

1. How much of the beginning inventory of the branch was acquired from outsiders?
2. How much is the correct net income of the branch?

3. What is the entry to adjust the net income of the branch on the home office books?
UP 118,000
Branch Income 118,000
Problem 4

24,000
The income statement submitted by the San Carlos City branch to the Home Office for the month
of December, 2020 is shown below. After reflecting the necessary adjustments, the true net 96,000
income of the branch was ascertained to be P156,000.

Sales ₱ 600,000
Cost of sales:
Inventory, December 1 ₱ 80,000 Inventory, Dec. 1 -HO
Shipments from home office 350,000 SFHO
Local purchases 30,000 TGAFS
Total available for sale ₱ 460,000 EI -HO
Inventory, December 31 100,000 360,000 Realized Profit
Gross margin ₱ 240,000 True Cost of Sales
Operating expenses 180,000
Net income ₱ 60,000 Mark up rate based on Cos

The branch inventories were:

Dec. 1, 2020 Dec. 31, 2020
Merchandise from home office ₱ 70,000 ₱ 84,000
Local purchases 10,000 16,000
Total ₱ 80,000 ₱ 100,000

1. The billing price based on cost imposed by the home office to the branch is 140%

2. The balance of allowance for overvaluation of branch on December 31, 2020 after adjustment

Problem 5

1. Beginning Inventory from

The following information came from the books and records of Philip Corporation and its branch.
The balances are as of December 31, 2020, the fourth year of the corporation's existence.
Home office Branch
Dr. (Cr.) Dr. (Cr.)

Sales (P320,000) 7,000

Shipments to branch (P80,000) 43,000
Shipments from home office 120,000 -
Purchases 50,000 50,000
Expenses 80,000
Inventory, January 1, 2020 36,000
Unrealized profit in branch inventory (50,000)
Sales
Cost of sales:
There are no shipments in transit between the home office and the branch. Both shipments BI
accounts are properly recorded. The closing inventory at billed prices includes merchandise
acquired from the home office in the amount of P21,000 and P9,000 acquired from vendors for a Pur.
total of P30,000. SFHO
TGAFS
Required: Determine the following: Less: EI
Gross Profit
1. Beginning inventory acquired from outsiders. 6,000 OPEX
2. Correct cost of beginning inventory. 26,000 Net Income - Branch
3. Realized profit from inventory shipments. 43,000 Add: Adj. - Realized Profit
4. Correct net income of branch. 107,000 True Net Income
5. Correct ending inventory. 23,000
6. Allowance balance at the end. 7,000

Problem 6

Tecware Products Corporation has two branches, Baguio and Davao, to which merchandise is
billed at 20% above cost. Partial trial balance accounts of the three entities at December 31, 2020
are summarized as follows:

Home office Baguio Branch Davao Branch

Inventory ₱ 800,000 ₱ 180,000 ₱ 240,000
Baguio branch 450,000
Davao branch 420,000
Shipments from home office 600,000 360,000
Purchases 1,600,000
Expenses 900,000 250,000 200,000
Home office 450,000 300,000
Loading - Baguio branch 130,000
Loading - Davao branch 120,000
Sales 1,950,000 900,000 750,000
Shipments to Baguio branch 500,000
Shipments to Davao branch 400,000

Physical inventories on hand at December 31, 2020 were as follows:

Home office ₱ 700,000 at cost
Baguio branch 210,000 at billed prices
Davao branch 150,000 at billed prices

1. The ending inventory of Tecware Products Corporation must be

2. The combined net income of home office and branches for 2020 must be
3. Correct net income of branches for 2020 must be
Problem 7

The M Company maintains branches that market the products that it produces. Merchandise is
billed to the branches at 25% above costs, with the branches paying freight charges from the
home office to the branch. On November 15, Branch No. 1 ships part of its stock to Branch No. 5
upon authorization by the home office. Originally, Branch No. 1 had been billed for this
merchandise at P160,000 and had paid freight charges of P35,000 on the shipment from the
home office. Branch No. 5, upon receiving the merchandise, pays freight charges of P25,000 on
the shipment from Branch No. 1. If the shipment had been made from the home office directly to
Branch No. 5, the freight cost to Branch No. 5 would have been P40,000.

Required: Prepare the journal entries necessary to record the above information on the books of
Branch No. 1, Branch No. 5 and Home Office.

Inter Branch Transfers:

1. Transferring Branch is as if returning the asset to the H.O.

2. Recipient is as if receiving the asset from the H.O.
3. HO makes a clearing entry by debiting the receiving branch and crediting the transferring branch.
4. Excess freight is charged to H.O.
 H.O. Books Br. Books
Branch Home Office
Current Current
150,000 117,420
37,500
10,500
- 4,500
- 1,080
25,000 25,000
179,920 179,920

SFHO 37,500
HOC 37,500
BC 10,500
AR 10,500
Supplies 4,500
BC 4,500
Branch Income 1,080
BC 1,080
Cash 25,000
HOC 25,000

BC 25,000
G.E. 25,000

G.E. 25,000
Cash 25,000

BC 25,000
Cash 25,000

1. Ending Inventory at cost

20% from outside parties @ cost 60,000

300,000
80% from HO @billed price 240,000 200,000
260,000
2. True net income

Sales 960,000 Sales 960,000

Cost of sales: Cost of sales:
 BI - BI -
Pur. 260,000 Pur. 260,000
SFHO 540,000 SFHO 450,000
TGAFS 800,000 TGAFS 710,000
Less: EI 300,000 500,000 Less: EI 260,000 450,000
Gross Profit 460,000 Gross Profit 510,000
OPEX 500,000 OPEX 500,000
Net Income - Branch - 40,000 True Net Income 10,000
Add: Adj. - Realized Profit 50,000
True Net Income 10,000

SFHO @ BP 360,000 Unrealized Profit

STB @ Cost 240,000 18,000 End Beg 16,000
UP - Current 120,000 118,000 Realized Current 120,000
Return
Mark up rate 50% 136,000

1. Beginning Inventory from outsiders

Outsiders 24,000 @ cost

72,000
SFHO 48,000 @BP 32,000 @ cost

2. Correct net income

Sales 850,000 Sales 850,000

Cost of sales: Cost of sales:
BI 72,000 BI 56,000
Pur. 180,000 Pur. 180,000
SFHO 360,000 SFHO 240,000
TGAFS 612,000 TGAFS 476,000
Less: EI 84,000 528,000 Less: EI 66,000 410,000
Gross Profit 322,000 Gross Profit 440,000
OPEX 160,000 OPEX 160,000
Net Income - Branch 162,000 True Net Income 280,000
Add: Adj. - Realized Profit 118,000
True Net Income 280,000

Unrealized Profit
End Beg. 20,000
Realized Current 100,000
Returns
nventory, Dec. 1 -HO 70,000
350,000
420,000
84,000 336,000
Realized Profit 96,000
True Cost of Sales 240,000

Mark up rate based on Cost 40%

1. Beginning Inventory from outside vendors:

From outside 6,000 @cost

36,000
From HO 30,000 @BP 20,000 @cost

Unrealized Profit
End Beg. 10,000
Realized Current 40,000
Return
50,000

320,000 Sales 320,000

Cost of sales: Cost of sales:
36,000 BI 26,000
50,000 Pur. 50,000
120,000 SFHO 80,000
206,000 TGAFS 156,000
30,000 176,000 Less: EI 23,000 133,000
Gross Profit 144,000 Gross Profit 187,000
 80,000 OPEX 80,000
Net Income - Branch 64,000 True Net Income 107,000
Add: Adj. - Realized Profit 43,000
True Net Income 107,000

1. EI of Tecware Products Corporation @ cost

HO 700,000
Baguio Branch 175,000
Davao Branch 225,000
EI @ Cost 1,100,000

Shipments to Davao 400,000

Multiply by: 120% x 120%
Debit to BC 480,000

Shipments to DAVAO at BP 480,000 Total ending inventory - DAVAO @ BP

Shipments recorde by DAVAO 360,000 150,000
Shipments in transit 120,000 120,000
270,000
HO DAVAO BRANCH

BC 480,000 SFHO 360,000

STB - DAVAO 400,000 HOC 360,000
UP 80,000

2. Combined Net Income

HOME OFFICE BAGUIO & DAVAO
Sales 1,950,000 Sales 1,650,000
Cost of sales: Cost of sales:
BI 800,000 BI @ cost 350,000
Pur. 1,600,000 Pur. -
TGAFS&FS 2,400,000 SFHO @ cost 900,000
Less: STB 900,000 TGAFS 1,250,000
Less: EI 700,000 800,000 Less: EI @ cost 400,000 850,000
Gross Profit 1,150,000 Gross Profit 800,000
OPEX 900,000 OPEX 450,000
Net Income 250,000 True Net Income 350,000
COMBINED NET INCOME 600,000

3. True Net Income of the Branches 350,000

Branch 1 Branch 5 Home Office

SFHO 160,000 Branch Current - Br. 1

HOC 160,000 STB - Br. 1
Unrealized Profit
Freight 35,000
Cash 35,000

HOC 195,000 SFHO 160,000 BC - Br. 5

SFHO 160,000 HOC 160,000 Freight
Freight 35,000 BC - Br. 1
Freight 40,000
Cash 25,000
HOC 15,000
 Home Office

Branch Current - Br. 1 160,000

STB - Br. 1 128,000
Unrealized Profit 32,000

175,000
20,000
BC - Br. 1 195,000