Title AFAR_5.0_home-office-and-branch-accounting_2025_answered.pdf ✅

UL Integrated Review & Refresher Course in Accountancy R. D. BALOCATING AFAR 5.0 2 • SHIPMENTS FROM HOME OFFICE ACCOUNT (in branch books) ➢ use to record inventory shipments from home office under the periodic system. ➢ added to separate purchases from outsiders and branch beginning inventory in determining goods available for sale. • COMPUTATION OF SEPARATE COSTS OF SALES Home Office Books Branch Books Beginning inventory xxxx xxxx Purchases xxxx xxxx Shipments to branch (xxxx) Shipments from home office xxxx Ending inventory (xxxx) (xxxx) Cost of sales xxxx xxxx • METHODS OF BILLING SHIPMENTS a. At Cost b. At above cost (with mark-up) c. At branch selling price • SHIPMENTS IN EXCESS OF COST ➢ Reasons: 1. Equitable allocation of income between the various units of the enterprise. 2. Efficiency in pricing inventories. 3. Concealment of true profit margins from branch personnel ➢ Recording: A. Home Office Books Investment in Branch xxx Shipments to branch (cost) xxx Intracompany Inventory Profit xxx To record shipments to branch at cost on the home office books Intracompany Inventory Profit xxx Branch Profit xxx Adjusting entry for the realized profit. COMPUTATION: Intracompany Inventory Profit, beginning xxx Add: Intracompany Inventory Profit on current shipments xxx Total xxx Less: Intracompany Inventory Profit, ending xxx Realized profit xxx TO COMPUTE TRUE BRANCH PROFIT: Branch profit (per branch income statement) xxx Add: Realized profit xxx True branch profit xxx The true branch profit can be confirmed independently by preparing an income statement reflecting all merchandise at cost. B. BRANCH BOOKS Shipments from home office xxx Home office Equity xxx To record shipments from home office on the branch books
UL Integrated Review & Refresher Course in Accountancy R. D. BALOCATING AFAR 5.0 3 • FREIGHT COSTS ON SHIPMENTS- must be included in branch inventory and cost of goods sold measurement. Excessive freight charges should be charged to loss account. • EXPENSE ALLOCATION – the allocation of expenses among home office and branch operations is necessary to provide an accurate measurement of income for the separate units of the enterprise. • COMBINATION OF FINANCIAL STATEMENTS; 1. Non-reciprocal accounts are combined. 2. Reciprocal accounts are eliminated. Problem 1 The following are intracompany transactions between a home office and its branch: 1. The home office sent P100,000 cash to the branch. 2. The home office shipped inventory costing P200,000 to the branch; the intracompany billing was at cost. Assume that each location uses a periodic inventory system. 3. The home office allocated to the branch P3,000 of previously recorded advertising expenses totaling P9,000. 4. A branch customer erroneously remitted a P4,000 payment to the home office instead of to the branch. The home office recorded and deposited the check and notified the branch. 5. The home office which carries branch fixed assets on its books, allocated P5,000 of depreciation expense to the branch. 6. The branch remitted P60,000 excess cash to the home office. Required: a. Prepare the home office and branch journal entries for these transactions. b. Assuming that the branch reported P22,000 of net income for the period, prepare the home office’s entry in recognition of this income. a. Home office Books 1. Investment in Branch 100,000 Cash 100,000 2. Investment in Branch 200,000 Shipments to Branch 200,000 3. Investment in Branch 3,000 Advertising Expense 3,000 4. Cash 4,000 Investment in Branch 4,000 5. Investment in Branch 5,000 Depreciation Expense 5,000 6. Cash 60,000 Investment in Branch 60,000 Branch Books 1. Cash 100,000 Home Office 100,000 2. Shipments from Home office 200,000 Home office 200,000 3. Advertising Expense 3,000 Home office 3,000 4. Home office 4,000 Accounts Receivable 4,000 5. Depreciation Expense 5,000 Home office 5,000 6. Home office 60,000 Cash 60,000 b. Home office books: Investment in Branch 22,000 Branch Profit 22,000