ADVACC2: REVENUE RECOGNITION- HOME OLFU

OFFICE BRANCH ACCCOUNTING

Branch is an organization that:
-

Sells goods out of stock that it maintains

Possess the authority to engage in transactions as an independent business
Makes sales to customers, passes on customer credit, collects receivables, incurs
expenses and performs other functions normally associated with the operations of a
separate business enterprise
Has a branch accounting systems comparable to the systems of independent business
except in the manner of accounting for ownership equities and in recording
transactions between branches and the main office of the business.

Accounting for Branches

-

Although a branch operates as a separate business unit, it is subject to control by the

home office. At the end of the period, the home office adjusts and closes the branch
accounts and determines the branch net income.

Records Maintained at the Branch

-Generally, branch accounting system is maintained at the branch. The branch keeps the
books of original entry and posts to ledger records. FS are prepared by the branch periodically
and are submitted to the home office.
Reciprocal Accounts
Branch Book
HOME OFFICE CURRENT
2) Assets transferred to home office
xx
xx
4) Branch Loss
xx
7) Home office expenses paid by the branch
xx

1) Assets received from home office

xx

3) Branch Income
5) Expense allocation

xx

6) Branch Expense paid by the home

Office
xx
Home Office Books
INVESTMENT IN BRANCH/ BRANCH CURRENT
1) Assets transferred to branch
xx
3) Branch Profit
xx
5)Expense allocation
branch xx
6) Branch expense paid by home office

1 Prepared by: Keisha D. Morales

xx
xx

2) Assets received from branch

4) Branch loss
xx
7) Home office expense paid by
xx

ADVACC2: REVENUE RECOGNITION- HOME OLFU

OFFICE BRANCH ACCCOUNTING

Property, Plant and Equipment Used by the Branch

-

Equipment is purchased by the home office for the branch: the entry for the acquisition:
Home office books:
Equipment Branch ----------------------- xx
Cash/Accounts Payable -------------------xx
Branch books:
Home Office Current ---------------------- xx
Cash/Accounts Payable------------------- xx

Expenses incurred by the Home Office but charged to Branch

1. Certain items can be directly identified with individual branches and are immediately
charged to the branches. Such items includes taxes and insurance paid by the home
office on branch assets
2. Other charges resulting in benefits that are not directly identified with certain branches
such as advertising for different lines may be summarized on the home office books
and charged periodically to the branches using equitable basis
3. When a customer does not sells to customers but acts solely in aa supervisory capacity,
it may be desirable to charge all of its expenses to branches.
4. The home office may charge the individual branches for rents and interest in working
capital and properties transferred to the branches. When such are made, branch
recognizes these as expense items while home office reports corresponding revenues.
Billing Methods for Merchandise Shipped to Branch
1. At Original Cost (Home office cost)
2. At billed Price ( percentage on top of home office cost)
3. At the branchs retail selling price (mark-up based on billed price)
PROBLEM 1: Accounting for the Operations of a Branch
On January 1, 2014 the Quezon Company establishes its first branch in Natividad. Separate
books are to be kept by the branch and financial statements are to be submitted to the home
office at the end of each month. Merchandise is to be billed at cost. Depreciable assets are to
be carried on the books of the home office. Both the home office and the branch books use
the periodic inventory method. Transactions during 2014 for the month of branch operations
as follows:
1.
2.
3.
4.
5.
6.

Received cash of 40,000 from the home office

Purchase equipment with a five-year life for 20,000 cash
Received merchandise shipments from home office at the 32,000 home office cost.
Purchased merchandise from outside suppliers for 8,000 cash
Sold merchandise for 60,000 cash
Returned 2,000 of the merchandise acquired from home office
2 Prepared by: Keisha D. Morales

ADVACC2: REVENUE RECOGNITION- HOME OLFU

OFFICE BRANCH ACCCOUNTING
7. Paid expenses as follows: Salaries 12,000; Utilities 2,000; Rent expense 6,000 and
Miscellaneous 4,000
8. Remitted 30,000 to the home office
9. Salaries payable at year-end were 2,000 and depreciation of equipment for the year
was 4,000
10.Merchandise branch inventory at year end consisted of 2,000 merchandise acquired
from outside suppliers and 10,000 cash acquired from home office
Home Office: Sales 95,000; beginning inventory, 40,000; purchases, 90,000: ending
inventory 25,000
Record the entries of the above transactions. Determine the balance of Investment in Branch
in Home Office Books and the Home office current in branch books before the income
summary account
PROBLEM 2: Assume that the home office and branch accounting records of Carlo Company
and its Magtalang Branch on December 31, 2014 contain the following data: (Determine the
adjusted balance of each books)
Home office Books:
Branch - Current
DR
Nov. 30 Balance

CR
31,250

Dec. 5

10,000
Dec. 31 Depreciation charge to branch 2,000
Dec. 31 Shipments to Branch
4,000

Cash received

from branch
Dec. 18
Collection of branch
Trade receivable 500

Branch Books:
Home Office - Current
DR
Dec 4 Cash sent to home office 10,000
Dec. 28 Acquired equipment
1,000

CR
Nov. 30 balance
31,250
Dec. 31 Collection of H.O Trade Rable
Dec. 31 Depreciation charged by H.O 200

PROBLEM 3: Baguio Corp has been operating a branch in Surigao for a year. Shipments are
billed to the branch at cost. The branch carries its own accounts receivable, make its own
cash collections and pay its own expenses. The transactions of the branch for the year 2011
are given effect in the trial balance below:
Cash
Home Office Current
Shipments from Home Office

DEBITS
200,000

CREDITS
400,000

1,600,000

3 Prepared by: Keisha D. Morales

ADVACC2: REVENUE RECOGNITION- HOME OLFU

OFFICE BRANCH ACCCOUNTING
Accounts Receivables
Sales
Expenses
Totals

300,000
1,940,000
240,000
2,340,000

2,340,000

The branch inventory on December 31, 2011 is 260,000.

Determine:
1. On January 1, 2011, the shipment to Branch account on the Home office books should
have an opening balance of:
a. ob. 1,960,000
c. 360,000
d. 2,000,000
2. On December 31, 2011, compute the net income of the branch:
a. 1,700,000
b. 360,000
c. 1,400,000
d. 100,000
3. On January 1, 2012, the Branch Current account on the books of the Home office should
have a balance of:
a. 760,000
b. 1,000,000 c. 2,160,000
d. 400,000

PROBLEM 4: On December 31, 2011, the branch manager of Rachelle Company in Makati City
submitted the following data to the home office:
Petty cash fund
10,000
Sales
564,000
Sales returns
4,000
AR-Written Off
10,000
Shipments from Home office
300,000
AR, January 1, 2011
90,000
AR, December 31, 2011
100,000
Inventory, January 1, 2011
60,000
Inventory, December 31, 2011
70,000
Expenses (charged by H.O)
120,000

All cash collected on AR are remitted to the home office.

Determine:
1. The balance of the H.O Current Account on January 1, 2011
a. -0b. 160,000
c. 180,000 d. 300,000
2. The net income of the Makati Branch for the year ending December 31, 2011
a. 140,000 b. 144,000 c. 150,000 d. 270,000
3. The total remittance for the year 2011 is
a. 540,000 b. 544,000 c. 550,000 d. 560,000
4. On December 31, 2011, the Branch Account Current on the home office books is
a. P0
b. 160,000
c. 180,000 d. 300,000
PROBLEM 5: The Aramis Company bills its branch at 40% mark-up on the billed price. On
December 31, the balance in the unrealized profit account is to be calculated from the
following information reported by the branch:
Merchandise from
Merchandise
Total
H.O (Billed Price)
Purchase at
4 Prepared by: Keisha D. Morales

ADVACC2: REVENUE RECOGNITION- HOME OLFU

OFFICE BRANCH ACCCOUNTING
Outsiders (at Cost)
Merchandise
32,400
8000
40,400
Inventory 12/1
Merchandise into
40,500
24,000
64,500
stock 12/1-12/31
Merchandise
37,800
10,000
47,800
inventory 12/31
Required: 1. what is the balance of the unrealized profit account on the H.O books before any
adjustment is made for branch sales for December?
2. Assuming that the branch has a net income per books of 20,000 and had returned to the
home office merchandise originally acquired at a billed price of 1,080. What is the real branch
income?

-Pray.Praise.PrayKDM

5 Prepared by: Keisha D. Morales