ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
HOME OFFICE, BRANCH AND AGENCY ACCOUNTING
BRANCH AND AGENCY DISTINGUISHED
the following further differentiate these two:
Sales agency
Branch
displays merchandise and takes customers’
orders but does not carry stock of
merchandise to fill customers’ orders
Customers’ orders are sent to the home office
for approval of credit. Customers remit
payments directly to the home office.


Holds revolving cash fund provided by the
home office that is replenished when
depleted. No other cash funds are held.


Not a separate accounting entity. The only
accounting records maintained are cash
receipts and cash disbursement books
necessarily to account for the revolving fund.
The main office maintains records of sales
made through agency and the expenses it
incurs.




carries stock of merchandise used to fill
customers’ orders (or provides services similar
to those provided by the home office).
Grants credit in accordance with the
company’s policies, makes normal warranties,
fill customers’ orders and makes collections on
sales.
Has its own assets and liabilities and generates
its own revenues and incurs its own expenses.
Makes periodic remittances to home office
subject to company policy.
A separate accounting entity for internal
reporting. It maintains its own complete set of
accounting records.
For external reporting, the branch’s financial
statements are combined with home office’s
financial statement
A. Accounting for Agency
- Does not maintain its own separate accounting books, all of its transactions are recorded in the books of home office.
-
Maintains a simple record (e.g. log book) to record its cash receipts and cash disbursements, similarly to a petty cash system.
Agency
Home office books
January 1 receipt of revolving fund from home office, P1, Cash – Agency #1
1,000
000
Cash
1,000
January 1-31
Accounts receivable
200
Orders sent by agency to home office, P200.
Sales – Agency#1
200
Cost of sale, P120.
Cost of Sales – Agency#1 120
Inventory
120
Collection by home office of agency sales
Cash
200
Page 1 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Account Receivable
Jan 1-31
Disbursement from the revolving fund.
Expense P50
January 31
Replenished of revolving fund.
to determine the profit attributable to the agency.
Closing entry
200
No entry
Various Expense- Agency#1 50
Cash
50
Sales-agency#1
200
Cost of Sales
120
Various Expenses- agency#1
50
Income summary- Agency #1 30
B.
-
Accounting for Branch Operations.
Accounted for as a separate business unit, but subject to the control of the home office.
Maintains its own records and prepare its own financial statements. (internal reporting)
Branch FSs and Home Office FSs are combined for General Purpose Financial Statements. (external reporting)
Combined FSs are prepared by:
a. Adding together similar items of assets, liabilities, income and expenses, and
b. Eliminating reciprocal accounts.
Reciprocal accounts (interoffice or intra-company accounts)
Transactions of either the home office or the branch with external parties are recorded in the normal way. Thus, the PFRS apply when recording these transactions.
However, for internal reporting purposes, transactions between a home office and its branch are recorded in reciprocal accounts, namely:
1. “Investment in Branch” account or (“Branch Current” account).
maintained by Home office in its book.
- Asset account in the Home Office’s individual Financial Statements.
2. “home office” account or (“Home office current” account).
maintained by branch in its book of accounts.
- Equity account in the branch individual financial statements and at the same time it is their liability to HOME OFFICE.
The reciprocal accounts are increase (decrease) for the following:
Take note: Investment in branch = home office account
Investment in branch account
Home office account
(home office books)
(branch books)
Assets transferred to
X
Assets received from home office
X
branch
Shipments to branch
X
Page 2 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Freight cost paid by
Home office
Allowance for
overvaluation on
shipments
Branch expenses paid by
Home office
Debit memo by (from)
Branch
Credit Memo by (from)
Branch
Branch reported income
Branch reported loss
Errors
Remittance from Branch
Total
X
Shipments from Home Office
X
Branch expenses paid by Home
Office
Debit memo by (from) Home
Office
Credit memo by (from) home
office
Branch
reported
income
(income summary)
Branch reported loss
Errors
Remittance to home office
Total
X
X
X
(x)
X
X
(x)
X(x)
(x)
XX
X
(x)
X
(x)
X(x)
(x)
XX
Illustration: accounting for branch operations
Transactions
Initial investment
1. Home office establishes a
branch for an initial
investment of P1, 000, 000
Property carried in branch books –
branch acquisition.
2. Branch acquires
equipment for P400, 000 to
be carried or recorded in
the branch book.
Subsequent depreciation.
P40, 000
Home office books (journal entry)
Investment in Branch
1M
Cash
1M
Branch books (journal entry)
Cash
1M
Home Office
1M
No entry
Equipment
Cash
400k
400k
No Entry
Depreciation 40k
Accumulated Dep 40k
Page 3 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Property carried in home office
books – branch acquisition
3. Branch acquires an
equipment for P200, 000
Equipment-Branch
200k
Invest. in branch
200k
Home Office
Cash
Subsequent depreciation
P20, 000
Invest. In Branch
20k
Accumulated dep
20k
Depreciation 20k
Home Office 20k
Property carried in branch books –
home office acquisition
4. Home office acquires a
furniture for P50, 000 to be
recorded or carried in the
branch books
Investment in Branch
Cash
50k
50k
Equipment
50k
Home office
50k
Subsequent Depreciation
P5, 000
No Entry
Property carried in home office
books – home office acquisition.
5. Home
office
acquired
furniture for P30, 000 to be
carried in the home office
books, but possession and
use of the equipment is
transferred to the branch.
Subsequent depreciation
P3, 000
Transfer of inventories – freight
paid by Home office.
6. Home
office
transfers
inventory worth P150, 000 to
the branch. Freight paid by
Home Office is P10, 000
Furniture – Branch
Cash
200k
200k
Depreciation
5k
Accumulated Dep. 5k
30k
No entry
30k
Investment in Branch 3k
Accumulated Depr-Branch 3k
Depreciation
Home Office
3k
3k
Investment in Branch 160k
Shipments to Branch 150k
Cash
10k
Shipments from HO
Freight-in
Home Office
150k
10k
160k
Page 4 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Transfer of inventories – freight
paid by branch
7. Home
office
transfers
inventory worth P80, 000 to
the branch. Freight paid by
the branch is P6, 000
Purchase of inventories –
acquisition from outside parties
8. Branch purchases inventory
worth P40, 000 on account
from outside party. Freight
paid by branch is P2, 000
Revenue
9. Branch makes total sales of
P500, 000 on account.
Collection
10. Branch collects P400, 000
from account receivable.
Remittance to home office
11. Branch remits P300, 000
cash collections to home
office
Allocation of Expenses
12. Branch
incurs
various
operating
expenses
amounting to P100, 000,
one-fourth
of
which
remains unpaid.
13. Home office allocates P10,
000 utilities expenses and
P4, 000.
Investment in branch
80k
Shipments to branch
80k
Shipments from HO
Freight-in
Home office
Cash
80k
6k
80k
6k
No entry
Purchases
40k
Freight-in
2k
Accounts Payable
40k
Cash
2k
No entry
Accounts Receivable
Sales
No entry
Cash
400k
Accounts Receivable
400k
Cash
300k
Investment in Branch
300k
Home office
Cash
500k
500k
300k
300k
No entry
Various Expenses
100k
Cash
75k
Accrued Expenses
25k
Investment in Branch 14k
Utilities
10k
Overhead Expenses 4k
Utilities
10k
Overhead expenses 4
Home Office
14k
INDIVIDUAL FINANCIAL STATEMENTS
The trial balance of the branch as of this point is shown below:
Cash
Accounts receivable
Shipment from Home Office
Debit
417, 000
100, 000
230, 000
credit
Page 5 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Purchases
Freight – in
Equipment
Accumulated depreciation – equipment
Furniture
Accumulated depreciation – furniture
Accounts payable
Accrued expenses
Home office
Sales
Depreciation expense
Utilities expense
General overhead expense
Various operating expenses
Totals
Statement of profit or loss for the period of BRANCH
Sales
Cost of Goods Sold:
Inventory – beginning
Shipments from home office
Purchases
Freight-in
Total Goods Available for Sale
Inventory, end
Gross Profit
Depreciation Expense
Salaries Expense
Utilities Expense
Advertising Expense
Profit for the Period
40, 000
18, 000
400, 000
40, 000
50, 000
5, 000
40, 000
25, 000
827, 000
500, 000
68, 000
10, 000
4, 000
100, 000
1, 437, 000
1, 437, 000
P500,000
P230,000
40,000
18,000
P288,000
(150,000)
(138,000)
P362,000
(68,000)
(100,000)
(10,000)
(4,000)
P180,000
Closing entries: transactions 14 and 15.
Home office books
Branch books
Page 6 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Sales
500k
Inventory,END
150k
Shipments from home office
230k
Purchases
40k
Freight in
18k
Depreciation
68k
Utilities Expense
10k
Overhead Expense
4k
Various Expense
100k
Income Summary
180k
Investment in Branch
Income Summary- Branch
180k
180k
Income Summary
Home Office
180k
180k
COMBINED FINANCIAL STATEMENTS
1. Adding similar items of assets, liabilities, income and expenses and
2. Eliminating the reciprocal accounts
Illustration: Combined Financial Statements
The trial balance of ABC Co.’s Home office and Branch are shown below:
ABC Co.
Trial Balance
December 31, 20x1
Cash
Accounts receivable
Inventory beginning
Shipment from home office
Home office
Debit
credit
1, 100, 000
180, 000
650, 000
Branch
debit
credit
417, 000
100, 000
230, 000
Page 7 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Purchases
72, 000
Freight – in
22, 000
Shipments to branch
investment in branch
827, 000
equipment
720, 000
accumulated depreciation- equipment
furniture
90, 000
accumulated depreciation – furniture
accounts payable
accrued expenses
share capital
share premium
retained earnings, beginning
home office
sales
depreciation expenses
168, 000
utilities expenses
18, 000
general overhead expenses
7, 200
various operating expenses
180, 000
total
4, 034, 200
40, 000
18, 000
230, 000
400, 000
72, 000
40, 000
50, 000
9, 000
72, 000
45, 000
2, 000, 000
500, 000
206, 200
5, 000
40, 000
25, 000
827, 000
500, 000
900, 000
4, 034, 200
68, 000
10, 000
4, 000
100, 000
1, 437, 000
1, 437, 000
the home office and the branch have ending inventories of P270, 000 and P150, 000, respectively.
Combined Statement of Profit or loss
Sales
Cost of Goods Sold:
Inventory, beginning
Purchases
Freight-in
Total Goods Available for Sale
Inventory end
Gross Profit
Depreciation Expense
Salaries Expense
Utilities Expense
Advertising Expense
P1,400,000
P650,000
112,000
40,000
P802,000
(420,000)
(382,000)
P1,018,000
(236,000)
(280,000)
(28,000)
(11,200)
Page 8 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Profit for the Period
P462,800
Combined Balance Sheet
ASSETS
Cash
Accounts receivable
Inventory
Equipment
Accumulated depreciation – equipment
Furniture
Accumulated Depreciation-furniture
Total Assets
P1,517,000
280,000
420,000
1,120,000
(112,000)
140,000
(14,000)
P3,351,000
Liabilities and Equity
Accounts Payable
Salaries Payable
Share Capital
Share Premium
Retained Earnings
Total liabilities and Equity
112,000
70,000
2,000,000
500,000
669,000
P3,351,000
RECONCILIATION OF RECIPROCAL ACCOUNTS
Reconciling the reciprocal accounts is similar to bank reconciliation procedures. Reconciliation items can be broadly classified into the following:
a. Transfers in-transit
b. Unrecorded debit and credit memos
c. errors
Illustration 1: reconciliation – adjusted balance
ABC Co. is currently preparing its combined financial statements. At December 31, 2011, the home office shows a P156, 000 balance in its “investment in branch” account while
the branch shows a P70, 200 balance in its “home office” account. The following information has been gathered:
a. the home office shipped merchandise worth P20, 000 to the branch during December 2011 which the latter has received and recorded only in January 2012.
Page 9 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
b. The home office collected P10, 000 accounts receivable on behalf of the branch. The branch did not yet receive the credit memo sent by Home Office.
c. The branch returned damaged merchandise worth P30, 000 to the home office. The home office did not yet receive the debit memo sent by the branch.
d. A remittance of cash collection amounting to P40, 000 was not yet recorded by the home office.
e. The home office allocated overhead cost of P5, 000 to the branch which the latter has recorded twice.
f. Freight charge of P12, 000 paid by the home office for shipments of merchandise to the branch was recorded by the latter as P1, 200.
Requirement: Compute for the adjusted balances of the reciprocal accounts.
Investment in Branch
156,000
Unadjusted balances
Shipment in transit
Collection of Receivable
Return of Damage Merchandise
Unrecorded remittance
Allocation of cost recorded twice
Mathematical mistake
Adjusted balance
Home office books
Shipments to Branch
30k
Investment in Branch
Cash
40k
Investment in Branch
Home Office Account
70,200
20,000
(10,000)
(30,000)
(40,000)
(5,000)
10,800
P86,000
P86,000
30k
Branch books
Shipments from HO
20k
Home Office
20k
40k
Home Office
10k
Accounts Receivable 10k
Home Office
Expense
5k
Freight-in
Home Office
10.8k
5k
10.8k
Illustration 2: reconciliation – unadjusted balance
Page 10 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
ABC Co. is currently preparing its combined financial statements. At December 31, 2011, the home office shows a P182, 000 balance in its “investment in branch” account. The
following information has been gathered during the reconciliation process:
a. A credit memo sent by the home office to the branch amounting to P12, 000 was not yet recorded by the branch.
b. A debit memo sent by the home office to the branch amounting P9, 000 was not recorded by the branch.
c. A credit memo sent by the branch to the home office amounting to P20, 000 was recorded by home office twice.
d. A debit memo sent by the branch to the home office amounting P30, 000 was recorded by the home office as P3, 000.
e. The branch sent by mistake a credit memo amounting to P7, 000 to the home office. The home office did not record it.
Requirement: Compute for the unadjusted balance of the “Home Office” account.






Unadjusted balances
Credit memo sent by
home office
Debit memo sent by
home office
Credit
memo
from
branch recorded twice
Debit
memo
from
branch
recorded
erroneously
Erroneous credit memo
sent by branch
AJDUSTED BALANCES
Investment in Branch
182,000
-
Home Office Account
145,000
(12,000)
9,000
(20,000)
(27,000)
-
(7,000)
135,000
135,000
Illustration 3: Reconciliation - Net adjustment
ABC Co. is currently preparing its combined financial statements for the year ended December 31, 2011. As of this date, the “investment in branch” account has a balance of
P95, 000 while the “home office” account has a balance of P132, 000. The following information has been gathered:
a. The home office allocated unpaid utilities expenses amounting to P10, 000 to the branch which the branch did not record in full. Instead, the branch sent wrong adjusting
memo to the home office reducing the charge by P2, 500 and setting up a liability for the remaining amount.
b. The home office erroneously credited the branch for a return of shipment of merchandise worth P25, 000. The branch did not make any return of merchandise.
Page 11 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
c. The branch mistakenly received a copy of the home office correcting for item (b) above dated January 3, 2012 and entered a credit in favor of the home office on
December 31, 2011.
d. The branch mistakenly sent the home office a debit memo amounting to P3, 000 for an apparent remittance of collections which did not happen. The home office did
not record the debit memo.
Requirement: Compute for
a. Net adjustment to the “investment in branch” and “home office” account
b. Adjusted balances of the reciprocal accounts.
Unadjusted balances
Allocated
expenses
not
recorded in full
Erroneous credit by home office
Erroneous correcting entry
Erroneous debit memo
Adjusted balances
Investment in Branch
95,000
-
Home Office Account
132,000
10,000
25,000
P120,000
(25,000)
3,000
P120,000
“SHOULD BE” ENTRY
A.
HOME OFFICE BOOK
BRANCH’S BOOKS
ENTRY MADE
Investment in Branch
Utilities Expense
10k
10k
Investment in Branch
Utilities Expense
10k
Utilities Expense
Home Office
10k
Utilities Expense
Utilities Payable
7.5k
7.5k
10k
B.
HOME OFFICE’S BOOKS
None
C.
BRANCH’S BOOKS
HOME OFFICE’S BOOKS
None
None
Correcting entry in item B above was recorded,
but only on January 3, 20x2
None
Shipments from HO
Home Office
Page 12 of 20
BRANCH’S BOOKS
CORRECTING ENTRY
NONE
10k
Shipments to branch 25k
Investment in Branch 25k
Utilities Payable 7.5k
Utilities Expense 2.5k
Home Office
10k
Investment in branch 25k
Shipment to Branch 25k
NONE
25k
25k
Home Office
25k
Shipments from HO
25k
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
D.
HOME OFFICE’S BOOKS
BRANCH’S BOOKS
None
None
None
Home Office
Cash
3k
3k
NONE
Cash
3k
Home Office 3k
HOME OFFICE WITH SEVERAL BRANCHES
Illustration 1: several branches – unadjusted balance
ABC Co. has several branches. On December 31, 2011, the “home office” account maintained by Alpha Branch shows a balance of P145, 000. The following information was
determined:
a. The home office charged Alpha Branch for a P15, 000 shipments which was actually sent to BETA Branch and retained by the latter. Alpha branch was not notified of the
intended shipment.
b. The home office charged Charlie branch for a P16, 000 shipments which was actually sent to Alpha. Alpha branch retained the shipment.
c. The home office erroneously recorded a remittance for P5, 000 from its Delta Branch as coming from Alpha branch.
d. Utilities expense of P4, 000 that is allocable to Echo Branch was recorded by the Home Office in Alpha Branch’s account. Alpha branch has inappropriately recorded the
related debit memo from home office.
Requirement: Compute for the unadjusted balance of the “investment in Alpha Branch” account in the Home offices.
Illustration 2: Several Branches – Adjusted Balance
ABC Co. has several branches. On December 31, 2011, the “investment in Branch one” account maintained by the home office shows a balance of P100, 000 while the “home
office” account maintained by Branch One shows a balance of P142, 000. The following information was determined:
a. Branch Two acquired equipment for P30, 000 to be maintained in the books of the Home Office. This was recorded by the home office as a transaction with Branch One.
b. Branch One acquired equipment for P40, 000 to be maintained in its books. This was not recorded by the Home office.
c. Branch Four remitted cash collections of P10, 000 to the home office which the latter failed to record.
d. The home office erroneously charged Branch one for a debit memo of P12, 000 received from Branch five.
e. Branch one reversed a previous debit memo from branch Six amounting to P6, 000. The Home Office decided that this charge is appropriately Branch Seven’s Cost.
Requirement: Compute for the adjusted balances of the reciprocal accounts of home office and branch one.
Illustration 3.1: difference between unadjusted reciprocal accounts
Modes Co. has several branches. The following information was determined during its reconciliation procedures for its reciprocal account with Lonian Branch.
a. Utilities expense of P4, 000 that is properly allocable to Lonian branch was recorded by the home office in Dorian Branch’s account. Lonian made the correct entry.
Page 13 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
b. The home office recorded a cash remittance of P16, 000 from Lonian Branch as coming from Phyrgian Branch.
c. A debit memo from home office for P10, 000 representing shipment of merchandise was not recorded by the Lonian Branch.
d. The debit posting for a cash remittance to the home amounting to P7, 000 was not recorded by Lonian Branch.
e. The credit posting for a credit memo received from the home office representing collection by home office of the branch’s account receivable amounting to P5, 000 was
not recorded by Lonian Branch.
Requirement: How much is the difference between the unadjusted “investment in Lonian Branch” and “Home office” accounts?
Special Problems in Accounting for Branch Operations
In addition to the general procedures, the home office and branch may enter into some transactions that would create special accounting problems. Such transactions are the
following:
1. Merchandise shipments to branch billed at a price above cost.
2. Inter-branch transactions
Shipments to branch billed at a price above cost.
Shipment to branch at cost plus arbitrary percentage = billed price.
Information on actual cost is withheld from the branch. Thus, upon receipt of shipments, the branch records the merchandise received at the billed price, rather than at cost.
This is solely for internal reporting purposes. So that when comparing the profitability of the business units within the company, the home office’s contribution to the company’s
profit through procurement manufacturing, and other functions made centrally are not disregarded.
Illustration:
Shipments at billed price
1. Home office transfers inventory worth P100, 000 to the branch. Shipments to the branch are billed at 20% above cost.
Home office books
Branch’s books
Investment in Branch 120k
Shipments from HO
120k
Shipment to Branch
100k
Home Office
120k
Allowance for mark-up
20k
2. Home office transfers inventory worth P200, 000 to the branch. Shipments to the branch are billed at 20% above cost. Freight paid by Home Office is P10, 000.
Home office’s books
Branch’s books
Investment in Branch
250,000
Shipment from HO
240,000
Shipment to branch
200,000
Freight-in
10,000
Allowance for Mark-up
40,000
Home Office
250,000
Page 14 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Cash
10,000
3. Home office transfers inventory worth P80, 000 to the branch. Shipments to the branch are billed at 20% above cost. Freight paid by the branch is P6, 000.
Investment in Branch
96k
Shipments from HO
96k
Shipments to Branch
80k
Freight-in
6k
Allowance for mark-up
16k
Home Office
96k
Cash
6k
4. Branch purchases inventory worth P40, 000, on account, from outside party. Freight paid by the branch is P2, 000.
No entry
Purchases
40k
Freight -in
2k
Accounts Payable
40k
Cash
2k
5. Branch makes total sales of P500, 000 on account.
No entry
Accounts Receivable
Sales
6. Branch incurs expenses of P100, 000, P20, 000 of which were allocated by the Home office to the branch.
Investment in Branch
20k
Utilities Expense
Utilities Expenses
20k
Cash
Home Office
Comprehensive problem
The following information was taken from the records of a branch:
Sales by branch
Billings to the branch by home office
Operating Expenses
Ending Inventory at billed Price
700,000
625,000
100,000
250,000
The following information was taken from the records of the home office:
Page 15 of 20
500k
500k
100k
80k
20k
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Branch Current Account
Shipments to Branch
Allowance for Mark-up – unadjusted
650,000
500,000
125,000
Requirement:
1. What is the billing rate based on cost?
Billing rate based on cost = Billings from HO / shipments to branch
= 625,000 / 500,000 = 125%
2. What is the mark-up percentage based on cost?
Mark-up percentage based on cost = Allowance mark-up / shipments to branch
= 125,000 / 500,000 = 25%
3. How much is the unrealized mark-up in ending inventory?
= 250,000 x 25/125 = P50,000
4. How much is the realized mark-up?
Total Mark-up
125,000
Unrealized mark-up
(50,000)
Realized mark-up
75,000
(625,000 x 25/125%)
5. How much ending inventory of the branch is included in the combined financial statements?
= 250,000 / 125% = 200,000
at cost
6. How much sale of the branch are included in the combined FSs?
P700,000
7. How much cost of goods sold of the branch is included in the combined FSs? P300,000
Page 16 of 20
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Proforma:
REPORTED COST OF GOODS SOLD OF BRANCH IN COMBINED FSs:
Beginning Inventory, from outsider
Beginning Inventory, From Home Office @ cost
Purchases
Shipments from HO @ cost
Freight-in (paid by branch or HOME Office)
TOTAL GOODS AVAILABLE FOR SALE
xx
xx
xx
xx
xx
XX
P500,000
P500,000
Ending Inventory:
From Outsider
From HOME OFFICE @ Cost
(xx)
(xx)
(200,000)
COST OF GOODS SOLD IN COMBINED FSs
XX
P300,000
Or
Inventory beg from HO and Outsider
Shipment from Home Office
Purchases
Freight-in
TGAS
Ending Inventory
Cost of Goods Sold at Billed Price
Less: Realized mark-up
COGS @ COST
625,000
P625,000
P(250,000)
P375,000
(P75,000)
P300,000
Page 17 of 20
(P625,000/125%)
(P250,000/125%)
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
8. What is the adjusted balance of the “Allowance for mark-up”?
Realized Mark-up
Allowance for Mark-up
125,000 unrealized/unadjusted
75,000
50,000
adjusted
Rate based on Billed Price /Sales
(kunuhay
(625,000 x20%)
(375,000 x20%)
(250,000 x 20%)
9. How much is the individual profit of the branch?
Sales
Beginning inventory
Shipments from HO
TGAS
End. Inve..
Branch’s Gross Profit
Opex
Branch’s Net Profit
700,000
625,000
625,000
250,000
(375,000)
325,000
(100,000)
P225,000
10. True Profit:
Sales
Reported COGS of Branch in Combined FSs
Branch’s True Gross Profit
Opex
Branch’s True Net Profit
P700,000
(300,000)
P400,000
(100,000)
P300,000
Or
Branch’s Net Profit
Realized Profit
Branch’s True Net Profit
P225,000
75,000
P300,000
Page 18 of 20
Beg …..
Ending..
Shipment From Home Office (@billed Price)
625,000
375,000
COGS by Branch
250,000
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
Illustration: DIFFERENT MARK-UP RATES
HOME OFFICE
BRANCH
Sales
Purchases
Shipments to Branch
Shipments from Home Office
Operating Expenses
Inventory Beginning
-From Outsider
-from Home Office @ 20% above cost
Inventory, end
- From outside purchases
- From Home Office
1,500,000
1,200,000
(300,000)
600,000
40,000
420,000
90,000
230,000
57,000
2,000
30,000
460,000
10,000
280,000
a. Individual Profit:
Sales
Cost of Sales:
Inventory, beg
Shipments from HO
Purchases
TGAS
Inv., end
Gross Profit
OPex
Net Profit
600,000
32,000
420,000
40,000
492,000
(290,000)
(202,000)
P398,000
(90,000)
P308,000
b.
Beginning
Shipment from HO (current)
Total Mark-up , adjusted
COGS/Realized mark-up
Billed Price
30,000
420,000
(280,000)
30,000
140,000
Rate
120%
140%
140%
120%
140%
Cost
25,000
300,000
(200,000)
25,000
100,000
Page 19 of 20
125,000
Mark-up
5,000
120,000
(80,000)
5,000
40,000
45,000
ACCOUNTING FOR SPECIAL TRANSACTIONS | LECTURE NOTE
c. True Profit;
Individual Profit
Realized Mark-up
True Profit
P308,000
45,000
P353,000
Page 20 of 20