Accounting for Specialized Institution
Dr / Mostafa Ahmed Alsaman
( Section one )
● Fatma Hany ( fbadr@eelu.edu.eg )
● Donia Ashraf ( dashrafabdelsalam@eelu.edu.eg )
● Sara Hamouda ( Shamouda@eelu.edu.eg )
● Nourhan Hassanin ( nhassanein@eelu.edu.eg )
● Sammar ( satefabdelazim@eelu.edu.eg )
● Alaa Nafea ( aaliibrahim@eelu.edu.eg )
● Eman Ramadan ( eshaban@eelu.edu.eg )
● Ahmed Khaled (akhaled@eelu.edu.eg )
● Manar Maher ( mmahermousa@eelu.edu.eg )
● Asmaa Saber ( asabermohammed@eelu.edu.eg )
Accounting for Home Office
and Branch Activities
Introduction
Companies ( home office ) often expand into new marketing by
new offices ( branches ) But a branch is not a separate legal
entity.
Merchandise Inventory Shipments to a Branch
•
To illustrate both systems, assume that the home office shipped goods that cost $5,000 to the branch
Periodic Inventory System
Home Office Books Periodic Inventory System
Investment in Branch 5.000 Shipments from Home Office 5,000
Shipments to Branch 5,000 Home Office 5,000
Perpetual Inventory System
Home Office Books Periodic Inventory System
Investment in Branch 5.000 Inventory - Home Office 5,000
Inventory 5,000 Home Office 5,000
• Case 2: Inventory Shipments Billed to the Branch in excess of Cost:
• Regardless of the policy followed by the home office (cost plus a selected
percentage mark-up, wholesale price, or retail price), the mark-up on the inventory
shipped to the branch is not realized until the goods are sold by the branch.
To illustrate, assume inventory costing the home office $30,000 is shipped and
billed to the branch for $36,000 (20% above cost).
Home Office Books
Periodic inventory System
Investment in Branch (billed price) ………………36,000
Shipments to Branch (cost)……………………………30,000
Perpetual inventory System
Investment in Branch (billed price)………………..36,000
Inventory (cost)……………………………………………….30,000
Unrealized Profit in Shipments to Branch………..6,000
Branch Books
Periodic inventory System
Shipments from Home Office…………………….. 36,000
Home Office………………………………………………… 36,000
Perpetual inventory System
Inventory-Home Office………………………………...36,000
Home Office………………………………………………….36,000
• Assume that 75% of the goods acquired from the home office was sold for $30,000.
Home Office Books
Investment in Branch…………………………………..3,000
Branch net income……………………………………… 3,000
The branch net income is computed as follows:
Sales revenues……………………………………………$30,000
Cost of sales (75%*$36,000 billed price) (27,000)
Branch net income………………………………………$3,000
Home Office Books
Unrealized Profit in Shipments to Branch…………………………………….. 4,500
Branch net income (75%*$6,000) (realized)………………………………. 4,500
(Adjusting entry)
• Ending Balance in Unrealized Profit in Shipments to Branch = 6,000 - 4,500 = $1,500
• Total Gross Profit (Total Branch net income) = 3,000 + 4,500 = $7,500
The Total Gross Profit (Total Branch net income) can be verified as follows:
Sales price………………………………...................$30,000
Cost of goods sold (75%*$30,000 cost) (22,500)
Gross profit ……………………………………………..$7,500
Acquisition of Fixed Assets
• The home office purchased equipment for $10,000 for Branch #8:
Home Office Books Branch Books
Equipment – Branch (#8) 10,000 Cash 10,000
Cash……………………………..10,000 No Entry
• The branch purchased equipment for $10,000, but the asset is to be recorded on the
home office books:
Home Office Books Branch Books
Equipment – Branch (#8) 10,000 Home Office…….10,000
Investment in Branch 10,000 Cash………………..10,000
Example: ABC Company and Branch No. 1
• The branch files financial statements at the end of each fiscal year with the home office.
• The branch has the authority to purchase inventory and fixed assets from the home office or
from other sources.
• Inventory acquired from the home office is billed to the branch at 20% above its cost to the
home office.
• The home office and branch use a periodic inventory system.
• The branch began the current fiscal period with $1,000 cash balance and $8,400 in inventory,
all acquired from the home office.
• The branch ended the current fiscal period with an inventory balance of $7,200, all acquired
from the home office.
• The home office will show a beginning balance of $1,400 in Unrealized Profit in Shipments to
Branch.
Transaction Home Office Branch #1
(1) Home office Investment in Branch (#1) 10,000 Cash 10,000
transferred $10,000 in cash and Cash 10,000 Home office 10.000
allocated $20,000 of Equipment Equipment Branch (#1) 20,000
display equipment.. Equipment 20,000 No Entry
(2) Home office ships inventory Investment in Branch (#1)…36,000 Shipments from Home Office 36,000
that cost $30,000 to branch; Shipments to Branch (#1) ….30,000
Home Office…….……………36,000
billing price is $36,000 Unrealized profit in
shipments to Branch (#1) 6,000
Ledgers:
Ledgers:
Closing Entries:
Closing Entries:
Closing Entries:
• The Realized Profit can be verified as follows:
H.O. Branch
Cost + Profit = Billed Price
Beg. Inventory $7,000 $1,400 = $8,400
+ Shipments 30,000 6,000 = 36,000
= Goods available for sale 37,000 7,400 = 44,400
- Ending Inventory (6,000) (1,200) = (7,200)
= Goods Sold $31,000 6,200 = $37,200
