Home Office, Branch and Agency Accounting
Home Office, Branch and Agency Accounting
Home Office, Branch and Agency Accounting
CHAPTER 7
Home Office, Branch and Agency Accounting
1. What is the difference between a Sales Agency 4. What are Intracompany accounts?
and a Branch?
These accounts are used to record the
Branch Sales Agency transactions between the home office and the
branch. These accounts are reciprocal accounts
Carries stocks of YES. NO.
merchandise Merchandise it between the home office and branch which
available for sale? carries is for means that if the books are completely up to
sample or display date, the balance in a reciprocal account on the
purposes. home office books will be equal but opposite of
Sells goods YES. NO.
that of the related reciprocal account in the
directly to It merely takes branch books.
customers? orders from
customers to be The Home Office or Home Office Current
approved by the account is recorded by the branch to take the
home office.
place of the customary capital accounts. Its
Has authority to YES. NO. reciprocal account on the home office books is
engage in It operates under the Investment in Branch or Branch Current.
transactions as an the direct
independent supervision of the
business unit? home office.
5. What are the transactions that affect the
Maintains a YES. NO. intracompany accounts?
complete set of Agency
books? transactions are (Home Office
recorded in home Books)
office books. Investment in (Branch Books)
Branch Home Office
Branch inventory acquired from P xxx Freight costs incurred because of indirect
home office at billed price routing does not increase the cost of
Divide by billing percentage of cost % inventories. The amount of freight costs
Branch inventory at cost P xxx properly included in inventories at a branch is
limited to the cost of shipping the merchandise
2. Computation of the actual or true branch profit directly from the home office to its present
insofar as the home office is concerned. location. Excess freight costs are recognized as
expenses of the home office.
Branch profit (loss) as reported P xxx
Add: Overvaluation of branch cost
of goods sold % 11. What are the necessary procedures for the
Actual branch profit insofar as the preparation of the combined financial
home office is concerned P xxx statements of the home office and the branch?
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CHAPTER 7
REVIEW PROBLEMS
3. The unadjusted balance of the Branch Current 5. The cost of goods sold to be reported in the
account. branch’s income statement ended December
a. P 928,100 31, 2014.
b. 1,056,900 a. P 514,500
c. 1,035,280 b. 551,075
d. 1,294,200 c. 542,025
d. 525,305
4. The adjusted balance of the Branch Current
account. 6. The cost of goods sold of the branch to be
a. P 1,408,500 reported in the combined income statement.
b. 974,300 a. P 470,700
c. 1,056,900 b. 328, 900
d. 1,004,480 c. 394, 500
d. 455,200
ANSWERS AND SOLUTIONS
7. The amount of the Allowance for Overvaluation
2. A realized for the current year.
3. C a. P 294,625
4. D b. 80,375
Home Office Branch Current c. 95,225
Current (Home Office d. 148,075
(Branch books) books)
Unadjusted balance P928,100 1,035 280(3) ANSWERS AND SOLUTIONS
Adjustments:
a. 3,780
b. 6,900 5. B
c. (4,000) Beginning inventory:
d. 35,200 3,200 from outside suppliers P93,000
e. (10,000) (5,000) from home office
f. (35,000) Cost 360,000
g. 4,500 allowance for overvaluation 90,000 P543,000
h. 6,000 6,000 Purchases 125,200
i. 13,000 Shipments from HO
Cost P237,500
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CHAPTER 7
allowance for account balances on the books of home office and its
overvaluation 285,000 522,500 branch as of December 31,2014:
Ending inventory
from outside suppliers P69,000
from home office (current Home office Branch books
year shipments) books
cost 237,500 Inventory, January 1 P5,000 P14,000
allowance for
overvaluation 285,000
Shipments from HO - 37,700
from beginning Purchases 225,000 50,000
inventory* Shipments to Branch 36,250
Cost 38,500 Branch Inventory
allowance for Allowance 13,125 -
overvaluation 9,625 (639,625)
Cost of goods sold to be Sales 300,000 180,000
reported in the branch’s Operating expenses 2,500 27,500
income statement P551,075
*Since the cost of the ending inventory of the Per physical count, the ending inventory of the branch is
branch from home office of P276,000 P10,500 including goods from outside purchases of
(P345,000x80%) exceeds the cost shipments to the P6,925.
branch for the current year of P237,500, then the The ending inventory of the home office is P30,000.
excess should have come from the beginning branch
shipments amounting to P38,500. 8. The branch beginning inventory in 2014 that
came from outside purchases.
6. A a. P 9,750
Beginning inventory: b. 7,500
from outside suppliers P93,000
from home office @ cost 360,000 P453,000
c. 2,250
Purchases 125,200 d. 4,250
Shipments from HO @cost 237,500
Ending inventory 9. The amount of the unrealized profit in the
from outside suppliers P69,000 separate books of the home office on January 1,
from home office @ cost
(current year shipments) 237,500 2011.
from beginning inventory a. P 10,000
@cost 38,500 (345,000) b. 3,000
Cost of goods sold to be c. 9,425
reported in the combined
income statement P470,700
d. 2,250
a. P 13,125
b. 9,425
c. 10,875 11. A
d. 10,125 Ending inventory of the home office P30,000
Total branch ending inventory from home office at
cost 10,000
13. The combined net income for the year. Ending inventory of the branch from outside
a. P 128,250 purchases 6,925
b. 136,250 The total ending inventory to be shown on the
c. 135,175 combined financial statements P46,925
d. 144,250
12. D
Allowance for
ANSWERS AND SOLUTIONS Overvaluation
Branch inventory, beginning (acquired from
8. D HO) P2,250
Unrealized profit incurrent branch shipments Add: Shipments during the period 10,875
(P36,250x30%) P10,875 Total before adjustment 13,125
Less: Branch inventory allowance 13,125 Less: Branch inventory, end (acquired from
Unrealized profit in branch beginning inventory 2250 HO) 3,000
Divide by billing percentage 30% Overvaluation of branch cost of goods sold P10,125
Cost of branch beginning inventory from home
office 7,500 13. C
Multiplied by billing percentage of cost 130%
Sales of home office P300,000
Branch beginning inventory from home office at
Cost of sales of home
billed price 9,750
office:
Less: total branch beginning inventory 14,000
Inventory, January 1 P5,000
Branch beginning inventory that came from outside
Purchases 225,000
purchases P4,250
Shipments to Branch (36,250)
Inventory,
9. B December 31 (30,000) (163,750)
Branch ending inventory from home office at billed Operating expenses (72,500)
price per physical count (P10,500-P6,925) P3575 Net income of home
Add: Shipments to branch in transit * 9,425 office 63,750
Total branch ending inventory from home office at True branch income:
billed price 13,000 Sales P180,000
Divide by billing percentage of cost 130% Cost of sales
Total branch ending inventory from home office at Cost of goods
cost 10,000 available for sale P111,125
Multiplied by billing percentage 30% Inventory,
Unrealized profit in the separate books of the December 31
home office on January 1, 2011 P3,000 (10,500+9,425) (19,925) (91,200)
*Since the total of Shipments to Branch account and the Operating expenses (27,500)
Branch Inventory
Unrealized profit in current branch shipments of
Allowance realized 10,125 71,425
P47,125 (P36,250 + P10,875 or P36,250x130%) exceed Combined net
the recorded amount of Shipments from HO account of income P135,175
P37,700, then there must be shipments in transit at the
end of the period amounting P9,425 at billed price Or, alternatively:
(P47,125- P37,700) Sales (P300,000+ P180,000) P480,000
Cost of sales at cost
Inventory, January 1
10. C (5,000+7,500+4250) P16,750
Inventory, January 1 P14,000
Purchases
Shipments from HO 37,700
(225,000+50,000) 275,000
Purchases 50,000
Inventory, December 31 (46,925) (244,825)
Shipments to branch in transit 9,425
Operating expenses
Cost of goods available for sale of the branch P111,125
(72,500+27,500) (100,000)
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Combined net income P135,175 17. The amount charged by the home office as
expense as a result of the interbranch transfer.
a. P 3,000
On November 2, 2014, the home office of Queen Babies b. 1,000
Sports Companies recorded a shipment of merchandise c. 1,500
to its Cagayan branch as follows: d. 2,000
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CHAPTER 7
CHAPTER 8
Business Combinations-Statutory Mergers and Statutory Consolidations
CONSOLIDATION MERGER
A+B=C A+B=A/B
PURCHASE OR POOLING
ACQUISITION METHOD OF
INTEREST
Assets and liabilities Assets and liabilities
acquired are acquired are measured
measured and and recorded at Book
recorded at Fair value.
value. ELIMINATED BY IFRS 3
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CHAPTER 7
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CHAPTER 7
REVIEW PROBLEMS
Winterfell Company and Kingslanding Company are two family, while the Baratheon family owns Kingslanding
family owned ice cream producing companies in Company. The Stark family has only one son, and he is
Cagayan. Winterfell Company is owned by the Stark engaged to be married to the
CARRYING
FAIR VALUE daughter of Baratheon family. Because the son is
AMOUNT
Accounts receivable P 20,000 P 20,000 currently managing Winterfell Company, it is proposed
Inventory 140,000 125,000 that he be allowed to manage both companies after the
Land 620,000 840,000
Buildings (net) 530,000 550,000 wedding. As a result, it is agreed by the two families
Farm equipment (net) 360,000 364,000 that Winterfell Company should take over the assets of
Irrigation equipment (net) 220,000 225,000
Kingslanding Company on January 1, 2014.
Vehicles (net) 160,000 172,000
TOTAL ASSETS P2,050,000
Winterfell Company issued 200,000 shares of its P1 par Goodwill (see no. 1) P 23,448,000
Decrease in contingent
value stock when the fairvalue of the stock is P125. At
consideration (184,000 - 170,000) (14,000)
the acquisition date, a provisional fair value of the farm Increase in provisional value of the
equipment was P 364,000. An additional valuation farm equipment (364,000 - 400,000) ( 36,000)
received on November 30, 2014 increased the GOODWILL, Dec 31, 2011 P 23,398,000
provisional value to P 400,000 and on April 30, 2014 this
fair value was finalized to P 450,000. It was further
agreed that Winterfell Company would pay additional TheDub Co.had these accounts at the time it was
amount on January 1, 2016 if the average income acquired by Bush Co.:
during the 2-year period of 2014-2015 exceeded P
80,000 per year. The expected value of this Cash------ ----------------------------------------------------36,000
consideration was calculated as P 184,000. On August Accounts receivable-------------------------------------457,000
31, 2014, the contingent consideration happens to be P Inventories-------------------------------------------------120,000
170,000; the measurement period is 1 year. Plant, property and equipment-----------------------696,400
Liabilities---------------------------------------------------350,800
1. What amount will be recorded as goodwill (gain Bush paid P1, 400,000 for 100% of the stock of Dub Co.
on bargain purchase) on January 2014?
it was determined that fair market values of inventories
a. P 23,434,000
and Plant, property and equipment were P 133,000 and
b. (1,352,000)
c. 23,264,000 P 900,000, respectively.
d. 23,448,000
3. Goodwill from the transaction.
2. What amount of goodwill (gain on bargain a. P 296,800
purchase) will be recorded in December 2014? b. 237,800
a. P 23,398,000 c. 224,800
b. 23,348,000 d. 238,900
c. 23,362,000
d. 23,376,000 4. Net assets of the subsidiary on the date of
acquisition
ANSWERS AND SOLUTIONS a. P 1,175,200
b. 1,175,600
c. 1,852,330
1. D
Consideration transferred: d. 1,172,380
Shares: (200,000 x 125/share) P 25,000,000
Contingent consideration 184,000 P25,184,000 5. Assuming Bush paid P 1,000,000. How much is
Less: Fair value of net assets acquired: the goodwill or gain on bargain purchase to be
Accounts receivable P 20,000 recorded?
Inventory 125,000 a. Goodwill 175,200
Land 840,000 b. gain on bargain purchase 175,200
Buildings 550,000 c. gain on bargain purchase 189,300
Farm equipment 364,000
d. goodwill 189,300
Irrigation equipment 225,000
Vehicles 172,000
Accounts payable (80,000) ANSWERS AND SOLUTIONS
Loan-metrobank (480,000) 1,736,000
GOODWILL P 23,448,000 3. C
Acquisition cost P1,400,000
2. A FV of assets acquired:
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Cash 36,000 LLL’s current assets and plant and equipment have fair
Accounts receivable 457,000
values of P3,000,000 and P5,000,000, respectively. LLL
Inventories 133,000
Plant, property & equipment 900,000
purchases KKK’s net assets for P 3,068,000.
Liabilities (350,800) (1,175,200)
Goodwill P 224,800
6. How much is the goodwill?
a. P 3,068,000
4. A b. 33,800
Acquisition cost P1,400,000 c. –o--
Goodwill 224,800 d. 33,700
Total assets P1,175,200
7. How much is the increase in the assets of LLL?
5. B a. P 2,927,600
b. 3,068,000
Acquisition cost
P1,000,000
c. 2,730,000
FV of assets acquired: d. 2,455,000
Cash 36,000
Accounts receivable 457,000 8. How much is the total assets of LLL?
Inventories 133,000 a. P 11,068,000
Plant, property & equipment 900,000 b. 10,010,000
Liabilities (350,800) (1,175,200) c. 5,000,000
Gain on bargain purchase P(175,200) d. 6,492,000
Plant and
equipment, net
4,654,000 1,040,000
Patents - 260,000
Total assets P6,492,000 P2,927,600
Total liabilities
and equity P6,942,000 P2,927,600
equipment 1,248,000
Per independent appraiser’s report, KKK assets have Patents 338,000
FMV’s of P 1,653,600 for currents assets, P 1,248,000 Liabilities (171,600) (3,068,000)
Goodwill -0-
for plant and equipment and P 338,000 for patents.
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CHAPTER 7
d. 1,500
7. B
FMV of assets acquired P3,068,000
ANSWERS AND SOLUTIONS
8. B
9. A
LLL’s assets at book value:
Consideration
Current assets P 2,288,000
transferred:
Plant and equipment,
4,654,000 P40
net Cash
0
LLL’s Total assets P6,942,000
Shares (10 x 36) 360
FMV of assets
P3,068,000 P76
acquired Total
Total assets P10,010,000 0
Less: fair value of assets
acquired:
F acquires assets and liabilities of M Company on Cash P80
January 2014. To obtain these shares, F pays P 400 and Receivables 160
issues 10 shares of P20 par value common shares on Inventory 300
this date. F stock had FV of P36 on this date. F also pays Land 130
Buildings (net) 280
P15 to a local investment firm for arranging the
Equipment (net) 75
transaction. An additional P10 was paid by F in stock
Trademark 40
issuance costs. Accounts payable (60)
The book values for both F and M as of January 2014 Long-term liabilities (300) 705
follow. In addition, M holds a fully amortized trademark Goodwill P55
that still retains a P40 value.
10. B
F Company M Company F common stock before acquisition 1,200
BOOKVALUE FAIRVALUE
Add: issued shares (10 x 20) 200
Cash P 900 P80 P80
Receivables 480 180 160 Total common stock 1,400
Inventory 660 260 300
Land 300 120 130
Buildings (net) 1,200 220 280
Equipment (net) 360 100 75 M Company acquired P Company through exchange of
Accounts payable 480 60 60
Long term common shares. All of P’s assets and liabilities were
liabilities 1,140 340 300 immediately transferred to M. M’s common stock was
Common stock 1,200 80
Retained earnings 1,080 480
trading at P20 per share at the time of exchange.
Following selected information is also available.
9. Goodwill is
a. P 55
b. 115
Before After
c. 45
acquisition acquisition
d. 50 Par value of shares
outstanding P 200,000 250,000
10. Total common stock is Share premium 350,000 550,000
a. P 1,400
b. 1,450 11. Shares issued at the time of exchange
c. 1,350 a. P 12,500
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14. B d. 6,000
Total sales 800,000 800,000
Less: intercompany sales 100,000 -
19. Consolidated cost of sales for 2014
Consolidated sales P700,000 P800,000
a. P 500,000
b. 620,000
15. C
Snxnjsndnet income 60,000 60,000 c. 700,000
Less: unrealized intercompany profit 20,000 10,000 d. 230,000
Balance 40,000 50,000
Multiplied by: % of parent’s share ___80% 80% 20. Profit attributable to equity holders for 2014.
32,000 40,000 a. P 99,000
Add: parent’s income from b. 102,000
own operations 225,000 60,000 c. 98,000
Consolidated net income P257,000 P100,000 d. 85,000
17. D 19. D
Snxnjsnd net income (see no.2) 40,000 50,000 Total COGS P260,000
Multiplied by: nci % 20% 20% Less: intercompany purchases 40,000
NCI in net income P8,000 P10,000 Add: unrealized profit 10,000
Consolidated COGS P230,000
The separate incomes (which do not include investment
income) of PPP Corporation and SSS Corporation, its 20. C
PPP net income from operations P100,000
80% owned subsidiary, for 2014 were determined as Less: unrealized profit 10,000
follows: Add: PPP’s share in SSS’ net income
(10,000 x 80%) 8,000
Profit attributable to equity holders for 2014 P98,000
PPP SSS
Sales P400,000 P100,000
Cost of sales (200,000) (60,000)
Gross profit 200,000 40,000
Other expenses (100,000) (30,000)
Separate incomes P 100,000 P10,000