CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN and VALIX

HOME OFFICE AND BRANCH ACCOUNTING

Part I: Theory of Accounts

1. If the home office receives a debit memo from the branch, the home office shall record it in its
separate statement of financial position by
A. Increasing the investment in the branch account
B. Decreasing the investment in the branch account
C. Disclosure only
D. None of the above

2. If the branch receives a 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

3. 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 the branch’s receivable
C. Debit memo received from the home office
D. Payment by the branch of home office’s liability

4. Which of the following transactions will decrease the investment in the branch’s account in the
home office’s separate statement of financial position?
A. Net income of the branch
B. Payment of the branch’s liability by the home office
C. Credit memo received from the branch
D. Return by the branch to the home office of merchandise shipped

5. Which of the following reconciling transactions will require credit to the home office's current
account in Branch A’s book for the adjustment?
A. Collection by Branch A of Branch B’s accounts receivable
B. Payment by branch A of the home office’s accounts payable
C. Credit memo received by branch A from home office
D. Reshipment of goods received by branch A to branch B

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Part II: Problem Solving

Problem 1

The following were found in your examination of the interplant accounts between the Home Office and
Branch A.
a. Transfer of equipment from the Home Office amounting to P50,000 was not booked by the branch.
b. P20,000 covering advertising expenses of Branch B was charged by the Home office to Branch A.
c. Branch A recorded a debit note on inventory transfers from the Home Office of P15,000 twice.
d. The Home Office recorded a cash transfer of P30,000 from Branch A coming from the Branch C
branch.
e. Branch D reversed a previous debit memo from Branch E amounting to P21,000. The Home Office
decided this charge was appropriate for Branch F’s cost.
f. Branch A recorded a credit memo from the Home Office of P8,000 as P800.

1. The net adjustment in the Home Office books related to the Investment in Branch A account
is
A. 50,000 credit
B. 10,000 credit
C. 10,000 debit
D. 30,000 credit

2. The net adjustment in Branch A’s books related to the Home Office Account is
A. 50,000 credit
B. 42,200 credit
C. 27,800 credit
D. 12,800 credit

Problem 2

The main office of Ceres Inc. is stationed in Manila but has branches in Bacolod City and Silay City.
The main office shipped goods costing P215,000 to its Bacolod branch with freight-prepaid of P10,000
for the shipment. Out of this shipment, only 70% was meant for Bacolod, and the rest were to be
shipped again to the Silay branch with a freight collect of 7,500 for the reshipping of goods to the Silay
branch.

1. Assume it would have cost the main office P8,000 to ship the goods intended for the Silay
branch directly to its location. How much is the loss to be recognized by the main office?
A. 6,500
B. 7,500
C. 2,500
D. 0

2. Assume it would have cost the main office P15,000 to ship the goods intended for the Silay
branch directly to its location. How much is the debit to freight-in in the Silay branch books?
A. 7,500
B. 17,500
C. 15,000
D. 10,500

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Problem 3

The Home Offices consistently billed its branch with a markup of 150% on cost. During 2025, the
Home Offices credited its Shipments-to-Branch account in the amount of P150,000. In the books of the
Branch, the Shipments-from-Home-Office had a balance of P325,000. The beginning inventory
reported by the branch was P175,000 of which P150,000 came from home office merchandise. Per
physical count, the branch reported an ending inventory in the amount of P72,500 of which P10,000
came from outside purchases. During the same year also, the Branch acquired P85,000 worth of
merchandise from its suppliers.

1. What is the cost of goods available for sale of the branch in the combined statement?
A. 426,667
B. 460,000
C. 320,000
D. 300,000

2. What is the cost of goods sold of the branch in the combined statement?
A. 265,000
B. 375,000
C. 485,000
D. 355,000

3. At the end of the year, the overallowance branch inventory account was debited in the
amount of?
A. 137,500
B. 247,500
C. 217,500
D. 154,167

Problem 4

For the year 2025, the Home Office billed its branch for merchandise shipments at 30% above cost.

The following were some of the account balances on the books of the home office and its branch as of
December 31, 2025:

Home Office Books Branch Books

Inventory, January 1 P 35,000 P 101,500
Shipments from Home Office 329,875
Purchases 1,575,000 350,000
Shipments to Branch 253,750
Branch Inventory Allowance 91,875
Sales 2,100,000 960,000
Operating Expenses 507,500 92,500

The beginning inventory from home office merchandise at cost was P39,375. The ending inventory of
the branch was P380,100 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, 2026?
A. 30,975
B. 15,750
C. 76,625
D. 72,490

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2. What is the branch beginning inventory in 2025 that came from outside purchases?
A. 46,375
B. 62,125
C. 9,625
D. 0

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

A. 385,000
B. 781,375
C. 396,375
D. 715,400

4. What is the total ending inventory to be shown on the combined financial statements?
A. 303,475
B. 513,475
C. 590,100
D. 462,821

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

A. 912,475
B. 927,821
C. 894,975
D. 927,725

Problem 5

On November 1, 2024, BBB Inc. established a sales agency in Pasay by sending cash to be maintained
at a P100,000 imprest balance and shipping a year’s worth of samples costing P312,000. During the
month, the agency submitted sales orders to the home office amounting to P528,000, but only 80% of
them were approved and invoiced by the end of the calendar year. Expense vouchers for the 2 months
were as follows: meal allowance P8,000, rent P18,000, transportation allowance P4,000. The gross
profit rate of the company is 40% based on sales.

How much is the net income to be reported by the sales agency for the year ended
December 31, 2024?
A. 129.200
B. 138,960
C. 181,200
D. 86,960

END

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