HOME OFFICE AND BRANCH ACCOUNTING
The home office and the branch maintain separate accounting
systems. Even though the home office and each branch maintain
separate books, all accounts are combined for external reporting so
that the external financial statements will represent the company as
a single economic enterprise. Certain elimination is necessary.
Transactions with outside parties are recorded in the usual manner.
Transactions between the home office and branch are recorded in
intracompany accounts. These accounts are reciprocal accounts
between the home office and the branch. The reciprocal account on
the books of the home office often is called Investment in Branch or
Branch Current, while the reciprocal account on the branch books
may be labeled Home Office or Home Office Current.
The balance of the Investment in Branch account shows the extent
of the home office’s investment in a particular branch. The
reciprocal Home Office account on the books of the branch
represents the home office’s equity in the branch and the balance is
shown in place of owner’s equity in the separate financial
statements of the branch.
The balances of the two reciprocal accounts are adjusted for the
same intra-company transactions. The account balances are
increased for asset transfers from the home office to the branch
and decreased for asset transfers from the branch to the home
office. Adjustments to the accounts are also made for profits and
losses of the branch, with branch profits increasing the account
balances and branch losses leading to a decrease.
Prepare the pertinent entries in each transaction. (Both in the
home office and branch books)
1. Assume that Lester Company establishes a branch in Iloilo.
The home office transfers to the branch P200,000 cash and
equipment that cost P400,000.
2. Iloilo branch purchases P20,000 of merchandise from
outside parties. (Use Periodic Inventory Method)
3. Home Office transfers merchandise with a cost of P90,000
to Iloilo branch and home office pays P5,000 to transport
the goods to the branch.
4. Home office purchases P50,000 of office equipment for its
Iloilo branch. (The equipment is to be recorded in branch
books)
5. The home office purchases P30,000 of office equipment
for its branch. (The equipment is not recorded on the
books of branch)
6. Iloilo branch purchases P40,000 of office equipment to be
used by branch. (The plant asset is to be recorded on the
books of home office)
7. The home office allocated the following expenses to the
branch. Utilities Expense (incurred by the branch and billed
to home office account), P20,000, Depreciation Expense
(branch fixed assets carried on home office books), 5,000,
and advertising expense, P15,000.
8. Cash remittance by Iloilo branch to home office, P100,000.
9. Accounts Receivable of the branch was collected by the
home office from a branch customer amounting to P4,000.
10. The branch collected for the home office accounts
receivable amounting to P9,000 from a home office
customer.
11. The income summary account of branch at the end the
period has a credit balance of P200,000.
Problems:
1. On December 31, 2016 the Investment in Branch account
on the home office books of the Mayores Company shows
a balance of P84,000, and the Home Office account
balance on the books of the branch shows a balance of
P97,350.The following data are determined in accounting
for the difference:
a. Merchandise billed at P6,150 was shipped by the
home office to the branch on December 28. The
merchandise is in transit and had not been recognized
on the books of the branch.
b. The branch collected a home office accounts
receivable of P25,000, but failed to notify the home
office of this collection.
c. The home office recorded incorrectly the branch net
income at P11,250. The branch reported net income
of P12,150.
d. The home office was charged of P6,400 when the
branch returned merchandise to the home office on
December 31. The merchandise is in transit.
What is the reconciled amounts of the reciprocal
amounts on December 31?
a. 103,500
b. 102,600
c. 78,500
d. 97,350
2. Princess Trading Co. operates branch in Cebu City. At close
of the business on December 31, 2016, the Home Office
account in the books of the Cebu branch showed a credit
balance of P928,100. The interoffice accounts were in
agreement at the beginning of the year. For purposes of
reconciling the interoffice accounts, the following were
ascertained:
a. Freight charge of P4,200 on merchandise shipped to
the branch was paid by home office and was recorded
in the branch book as P420.
b. Home office debit memo for P6,900 was recorded
twice by the branch by debiting the Home Office
Current Account.
c. The branch failed to take up a P4,000 debit memo
from the Home Office.
d. Branch store insurance premiums of P3,200 were
paid by the home office. The home office debited
insurance expense and credited cash in its books. The
branch recorded the amount of P32,000 as a liability.
e. A branch customer remitted P5,000 to the home
office. The home office recorded this as a cash
collection of its own receivable on December 31,
2016. Upon notification on the same year, the branch
debited the amount to Receivable from Home Office
and credited to Home Office Current.
f. A P35,000 shipment, charged by Home Office to Cebu
Branch, was actually sent to and retained by
Cabanatuan branch.
g. On December 27, 2016, the branch sent a check for
P4,500 to its suppliers. The branch erroneously
recorded the transaction as a remittance to the home
office and sent a copy of the debit memo to the home
office. The home recorded this upon receiving the
debit memo on January 2, 2017.
 h. The home office allocated advertising expense and
rent expense totaling P6,000 to Cebu Branch. The
home office charged the said expense to Caloocan
branch by mistake, Cebu branch had not entered the
allocation at year-end.
i. Inventory costing P13,000 was sent to the branch by
the home office on December 2, 2016. The branch
recognized a liability by crediting Accounts payable
upon the receipt of the inventory.
j. A branch customer remitted P21,000 to the home
office. The home office recorded this cash collection
on December 2, 2016. Upon receiving a credit memo,
the branch recorded the transaction twice on
December 31, 2016.
What is the unadjusted balance of the branch
current account as of December 31, 2016?
Interbranch transfers
3. The Home office shipped merchandise costing P24,000 to
Branch A and paid freight of P1,600. Shortly afterward, the
home office instructed Branch A to transfer this this
merchandise to Branch B. Freight costs of P1,200 were
paid by Branch A to carry out the order. If the merchandise
had been shipped directly from the home office to Branch
B, the freight cost could have been P2,000.
Prepare all the entries on the books of the home office,
Branch A, and Branch B.
4. Fire 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 2016.
However, at December 31, 2016, the following reciprocal
balances are found in the home office books:
Investment in Baguio 186,500
Investment in Davao 84,000
Data for reconciliation of the reciprocal accounts are as
follows:
a. On December 29, 2016, 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.
b. Fire has transferred goods costing P28,900 to Baguio
branch and paid P2,500 of shipping cost on December
16, 2016. Baguio shipped all of these goods to Davao
upon instruction of the home office on December 31,
2016. Shipping cost is P3,600 freight collect. Had the
goods were shipped directly to the Davao, P5,000 of
freight cost should have been incurred. The
interbranch shipment was not recorded by the
branches and the home office as well.
c. Baguio has collected cash of P5,750 from Davao’s
customer. This transaction is not yet recorded by
Davao and the home office.
d. 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.
e. Baguio remitted P14,300 cash to the home office on
December 12, 2016. The home office has failed to
record the said remittance.
f. 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.
Compute for the following:
Adjusted balance of Investment in Baguio account
a. 72,550
b. 68,800
c. 86,850
d. 103,950
Adjusted balance of Investment in Davao account
a. 181,450
b. 182,550
c. 175,700
d. 145,400
Unadjusted balance of Home Office Current account in
Baguio’s books
a. 52,150
b. 87,200
c. 107,250
d. 92,950
Unadjusted balance of Home Office Current account in
Baguio’s books
a. 236,250
b. 122,000
c. 115,150
d. 84,850
SALES AGENCY
5. On July 1, 2016, the AC Company established a sales
agency in Quezon City, sending samples of its merchandise
amounting to P14,000 and a working fund amounting to
P120,000 to be maintained on the imprest system basis.
The samples sent were intended to last until March 1,
2017. During the first two months of the operations, the
agency transmitted to the home office sale of goods
costing P486,000, but the home office were not able to fill-
up 20% of the said transmitted sales orders. Collections
from customers amounted to P123,235, net of 2% sales
discount. Payment made by the agency during July and
August were as follows: annual rent of P96,000,
advertising expense worth P25,000 and utilities amounting
to P30,000. It also purchased an equipment worth P30,000
which will be depreciated at 20% per annum. The gross
profit rate on sales agency order is 25% of sales.
Net Income of the agency for two months ended August
31, 2016 is?
SPECIAL PROBLEMS (HOME OFFICE AND BRANCH ACCOUNTING)
6. The CPA Company decided to open a branch store in
Manila. Shipments of merchandise to the branch P108,000
which included a 20% mark-up on cost. All accounting
records are kept at the home office.
 The branch submitted the following report summarizing its balances are at December 31, 2016, the third year of the
operations for the period ended December 31, 2016. corporation’s existence.
Home Office Branch Books
Sales on account 148,000 Books
Sales on cash basis 44,000 Sales 600,000
Collections of accounts 120,000 Expenses 200,000
Expenses paid 76,000 Shipments from 360,000
Expenses unpaid 24,000 home office
Purchase of merchandise for Allowance for 72,500
cash 52,000 overvaluation of
Inventory on hand, December branch inventory
31 (80% from home office) 60,000
Remittances to home office 110,000
The branch acquires all of its merchandise from home
office. The inventories of the branch at billed prices are as
How much is the ending inventory at cost?
follows:
a. 40,000
b. 50,000
January 1, 2016 75,000
c. 52,000
December 31, 2016 84,000
d. 51,000
What is the percentage of profit on cost that the home
What is the branch comprehensive income under the
office uses to bill merchandise shipped to branch?
generally accepted accounting principles?
a. 1,600
a. 20%
b. 2,000
b. 25%
c. 8,000
c. 30%
d. 5,000
d. 35%

9. The following data were taken from the records of Costner

7. Home Office bills its branch for merchandise shipments at Company of Manila and its Rizal Branch for 2016:
30% above cost. The following are some of the account Manila Office Rizal Office
balances on the books of home office and its branch as of Sales 530,000 157,500
December 31, 2016. Inventory, 57,500 22,250
Home Office Branch Books January 1
Books Purchases 410,000
Inventory, 5,000 14,500 Shipments to 105,000
January 1 branch
Shipments from 47,125 Shipments from 126,000
Home Office home office
Purchases 225,000 50,000 Inventory, 71,250 29,250
Shipments to 36,250 December 31
Branch Expenses 191,000 50,750
Branch Inventory 13,125
Allowance In 2016, Manila office billed the Rizal branch at 120% of
Sales 300,000 180,000 cost which was lower by 5% than last year’s.
Operating 72,500 27,500
Expenses What is the combined comprehensive income?
a. P48,325
Per physical count, the ending inventory of the branch is b. P48,000
P19,925 including goods from outside purchases of c. P49,650
P6,925; the ending inventory of the home office is d. P56,075
P30,000.

Compute for the following:

a. Unrealized profit in the separate books of the Home
Office on January 1, 2017?
b. The Beginning inventory in 2016 that came from
outside purchases
c. Cost of good available for sales of the branch
d. The total ending inventory to be shown on the
combined financial statements
e. The combined net income for the year

8. The following information are extracted from the books

and records of Phil Corporation and its branch. The