CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN AND VALIX

HOME OFFICE AND BRANCH ACCOUNTING

Part I: Theory of Accounts

1. In the separate statement of financial position of the home office, the investment in branch
account shall be presented as
A. Liability
B. Equity
C. Asset
D. Income
2. In the separate statement of financial position of the branch, the home office account shall be
presented as
A. Liability
B. Equity
C. Asset
D. Income
3. The main difference between the net income reported in the separate income statement of the
branch and the net income reported by the home office for the branch’s operation is the
A. Overstatement of beginning and ending inventory reported by the branch
B. Overstatement of total goods available for sale reported by the branch
C. Overstatement of cost of goods sold reported by the branch for the goods coming from
the home office
D. Overstatement of shipment from home office reported by the branch
4. If the home office receives debit memo from the branch, the home office shall record it in its
separate statement of financial position by
A. Increasing the investment in branch account
B. Decreasing the investment in branch account
C. Debiting the investment in branch account
D. Disclosure
5. If the branch receives credit memo from the home office, the branch shall record it in its
separate statement of financial position by
A. Increasing the home office account
B. Crediting the home office account
C. Debiting the home office account
D. Disclosure
6. Which of the following transactions will increase the home office account in the branch’s
separate statement of financial position?
A. Net loss of the branch
B. Collection by the home office of branch’s receivable
C. Debit memo received from the home office
D. Payment by the branch of home office’s liability
7. Which of the following transactions will decrease the investment in branch’s account in the
home office’s separate statement of financial position?
A. Net income of the branch
B. Payment of branch’s liability by the home office
C. Credit memo received from the branch
D. Return by branch to home office of merchandise shipped

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Part II: Problem Solving

PROBLEM 1

ABC Company established a branch in Bacolod by sending merchandise costing P924,500 and
effecting a fund transfer of P400,000 cash on January 1, 2024.

The branch purchased computer equipment costing P420,000 on April 1. As per agreement, the
home office will maintain all the property, plant and equipment records.

Bacolod branch collected P56,000 worth of Ortigas branch’s receivable on August 4. Cash
remittance to the home was P250,000 on September 28.

On November 21, Bacolod branch returned defective merchandise worth P125,000 to the home
office.

At the end of the year, the company’s controller found out that the branch accountant had failed
to record all the transactions initiated by the home office from the second half of the year.
Because of this, there is a significant discrepancy between the balances of the reciprocal
accounts.

For the purpose of reconciling the reciprocal accounts, the controller instructed the accounting
staff of the home office to send a copy of the Investment in Bacolod general ledger to the branch.

Investment in Bacolod
1/1 Merchandise to branch 924,500 4/2 Equipment acquisition 240,000
1/1 Fund transfer 400,000 9/30 Remittance 225,000
7/2 Merchandise to branch 135,000 11/22 Return of goods from branch 12,500
8/31 Fund transfer 95,000
10/5 Expense paid for branch 29,000

1. What is the unadjusted balance of the Home Office account?

A. 598,500
B. 585,500
C. 723,500
D. 335,500

2. What is the adjusted balance of the reciprocal accounts?

A. 844,500
B. 574,500
C. 901,000
D. 596,500

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PROBLEM 2

Manila Company has a branch in Baguio and Davao. The reciprocal accounts between the home
office and the branches were in agreement at the beginning of 2024. However at December 31,
2024, the following reciprocal balances are found in the home office books:
Investment in Baguio P186,500
Investment in Davao 84,000

Data for reconciliation of the reciprocal accounts are as follows:

 On December 29, 2024, the home office has instructed Baguio to transfer P74,000 cash to
Davao. Baguio recorded this transaction immediately. Upon receipt, Davao has recorded this
transfer at P47,000. The home office however has not yet recorded this interbranch
transaction as of the end of the year.
 Baguio has collected cash of P5,750 from Davao’s customer. This transaction is not yet
recorded by Davao and the home office.

 The home office has already allocated P11,000 and P9,000 of administrative expenses to
Baguio and Davao respectively. The branches are not yet notified.

 Baguio remitted P14,300 cash to the home office on December 12, 2024. The home office
has failed to record the said remittance.

 Davao returned goods costing P6,850 to the home office. The goods were shipped on
December 19 and received on December 24 but no entries have been made in the home office
books.

1. What is the adjusted balance of Investment in Baguio account?

A. 72,550
B. 66,800
C. 86,850
D. 103,950

2. What is the adjusted balance of Investment in Davao account?

A. 181,450
B. 182,550
C. 175,700
D. 145,400

3. What is the unadjusted balance of Home Office Current account in Baguio’s books?
A. 52,150
B. 87,200
C. 107,250
D. 92,950

4. What is the unadjusted balance of Home Office Current account in Davao’s books?
A. 236,250
B. 122,000
C. 115,150
D. 84,850

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PROBLEM 3

ABC Inc. has two branches. One is situated in Subic, and the other in Clark.

During the month, the head office shipped goods billed at cost of P880,000 to its Subic branch.
The shipping fee of P40,000 was paid by Subic branch. Immediately after receiving these goods,
the home office instructed Subic to store only P396,000 worth of goods, and ship the rest to the
Clark branch. Subic branch paid P30,000 for the reshipping of goods to the Clark branch.

1. What if it would have only costed the main office P29,000 to ship the goods intended for
Clark branch directly to its location, how much is the loss to be recognized by the main
office?
A. 23,000
B. 20,000
C. 17,000
D. 0

2. What if it would have costed the main office P62,000 to ship the goods intended for
Clark branch directly to its location, how much is the debit to freight-in in the Clark
branch books?
A. 22,000
B. 40,000
C. 52,000
D. 62,000

PROBLEM 4

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, 2024:

Home Office Books Branch Books

Inventory, January 1 P 35,000 P 101,500
Shipments from Home Office 263,900
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 1,260,000
Operating Expenses 507,500 192,500

Per physical count, the ending inventory of the branch is P73,500 including goods from outside
purchases of P48,475; the ending inventory of the home office is P210,000.

1. What is the amount of the unrealized profit in the separate books of the home office on
January 1, 2025?
A. 21,000
B. 15,750
C. 19,250
D. 52,500

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2. What is the branch beginning inventory in 2024 that came from outside purchases?
A. 48,475
B. 19,250
C. 33,250
D. 0

3. What is the Cost of goods available for sale of the branch?

A. 679,875
B. 781,375
C. 705,250
D. 715,400

4. What is the total ending inventory to be shown on the combined financial statements?
A. 280,000
B. 118,475
C. 283,500
D. 328,475

5. What is the combined net income for the year?

A. 957,950
B. 942,725
C. 876,750
D. 919,275

PROBLEM 5

On August 1, 2024, the home office in Ortigas established a branch in Makati to act as a sales
agency. The following assets were sent to the sales agency: Cash (for working fund to be
operated under the imprest system) P22,000; samples from the merchandise stock, which have a
salvage value of 15% of the cost, P36,000 which were useful until December 1, 2024. During
August, the sales agency submits sales order of P272,000, sales per invoice was billed at
P268,000 duly approved by the home office. Collection during the month was P58,200, net of
3% discount. Cost of merchandise shipped was P155,000 of which 80% were sold during
August. Home office disbursements chargeable to the sales agency were as follows: Furnitures &
Fixtures P40,000; salaries of the manager and salesmen for the month P21,600; annual rent of
the office space P36,000. On August 31, the sales agency working fund was replenished in the
amount of P17,925. The furnitures & fixtures were depreciated 18% per annum.

What is the net income of the agency for the month of August?
A. 51,825
B. 91,425
C. 93,225
D. 58,425

END

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